<PAGE>
ALLMERICA INVESTMENT TRUST
440 Lincoln Street
Worcester, Massachusetts 01653
(508) 855-1000
Allmerica Investment Trust (the "Trust") is a professionally managed, open-end
investment company designed to provide the underlying investment vehicles for
insurance-related accounts. The ten separate portfolios of the Trust
(collectively, the "Funds" and individually, the "Fund") currently offered by
this Prospectus are as follows:
SELECT EMERGING MARKETS FUND
SELECT AGGRESSIVE GROWTH FUND
SELECT CAPITAL APPRECIATION FUND
SELECT VALUE OPPORTUNITY FUND
SELECT INTERNATIONAL EQUITY FUND
SELECT GROWTH FUND
SELECT STRATEGIC GROWTH FUND
SELECT GROWTH AND INCOME FUND
SELECT INCOME FUND
MONEY MARKET FUND
Currently, shares of each Fund may be purchased only by separate accounts
("Separate Accounts") established by First Allmerica Financial Life Insurance
Company ("First Allmerica") or Allmerica Financial Life Insurance and Annuity
Company ("Allmerica Financial Life"), an indirect, wholly-owned subsidiary of
First Allmerica, for the purpose of funding variable annuity contracts and
variable life insurance policies. A particular Fund may not be available under
the Allmerica Select Variable Annuity contract or Allmerica Select Life policy
which you have chosen. The Prospectus of the specific insurance product you
have chosen will indicate which Funds are available and should be read in
conjunction with this Prospectus. Inclusion in this Prospectus of a Fund which
is not available under your contract or policy is not to be considered a
solicitation.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor ought to know before investing. Certain additional
information is contained in the Statement of Additional Information dated May 1,
1998 (the "SAI"), which has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference and is available upon
request without charge from Allmerica Investments, Inc. ("Distributor"), 440
Lincoln Street, Worcester, MA 01653, (508) 855-1000.
Investment in the Funds is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Money Market Fund will be able
to maintain a stable net asset value of $1.00 per share.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY
INSTITUTION. SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC") OR ANY OTHER GOVERNMENTAL AGENCY, AND ARE SUBJECT TO VARIOUS RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DATED MAY 1, 1998
--------------------------
Allmerica Investment Trust
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS................................................. 3
HOW ARE THE FUNDS MANAGED?........................................... 8
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?..................... 9
Select Emerging Markets Fund....................................... 9
Select Aggressive Growth Fund...................................... 10
Select Capital Appreciation Fund................................... 11
Select Value Opportunity Fund...................................... 12
Select International Equity Fund................................... 13
Select Growth Fund................................................. 13
Select Strategic Growth Fund....................................... 14
Select Growth and Income Fund...................................... 15
Select Income Fund................................................. 15
Money Market Fund.................................................. 16
MANAGEMENT FEES AND EXPENSES......................................... 17
FUND MANAGER INFORMATION............................................. 21
HOW ARE SHARES VALUED?............................................... 23
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS.............................. 23
SALE AND REDEMPTION OF SHARES........................................ 24
HOW IS PERFORMANCE DETERMINED?....................................... 24
ORGANIZATION AND CAPITALIZATION OF THE TRUST......................... 25
INVESTMENT RESTRICTIONS.............................................. 25
CERTAIN INVESTMENT STRATEGIES AND POLICIES........................... 25
APPENDIX............................................................. 32
</TABLE>
2
- --------------------------
Allmerica Investment Trust
<PAGE>
FINANCIAL HIGHLIGHTS
The following Financial Highlights have been audited by Price Waterhouse LLP,
independent accountants of the Trust. This information should be read in
conjunction with the financial statements and notes thereto which appear in the
Policyowner's annual report for the year ended December 31, 1997 ("Annual
Report") and which are incorporated by reference in the Trust's SAI. Further
information about the performance of the Funds is contained in the Annual Report
which may be obtained without charge from the Trust, 440 Lincoln Street,
Worcester, MA 01653, (508) 855-1000.
3
--------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
---------------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED
VALUE NET GAIN (LOSS) TOTAL FROM
YEAR ENDED BEGINNING INVESTMENT ON INVESTMENT
DECEMBER 31, OF YEAR INCOME/(2)/ INVESTMENTS OPERATIONS
- --------------------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Select Aggressive
Growth Fund/(1)/
1997 $2.037 $(0.009) $ 0.387 $ 0.378
1996 1.848 (0.009) 0.351 0.342
1995 1.397 (0.001) 0.452 0.451
1994 1.431 (0.002) (0.032) (0.034)
1993 1.197 0.001 0.234 0.235
1992 1.000 0.001 0.197 0.198
Select Capital
Appreciation Fund/(1)/
1997 1.485 (0.005) 0.218 0.213
1996 1.369 (0.003) 0.124 0.121
1995 1.000 (0.001) 0.397 0.396
Select Value
Opportunity Fund/(1)/
1997 1.511 0.010 0.364 0.374
1996 1.238 0.011 0.342 0.353
1995 1.089 0.009 0.183 0.192
1994 1.170 0.005 (0.081) (0.076)
1993 1.000 0.002 0.176 0.178
Select International
Equity Fund/(1)/
1997 1.356 0.015 0.049 0.064
1996 1.136 0.011 0.238 0.249
1995 0.963 0.013 0.176 0.189
1994 1.000 0.003 (0.038) (0.035)
Select Growth
Fund/(1)/
1997 1.430 0.006 0.480 0.486
1996 1.369 0.005 0.297 0.302
1995 1.099 -- 0.270 0.270
1994 1.119 0.003 (0.020) (0.017)
1993 1.111 0.001 0.008 0.009
1992 1.000 0.001 0.111 0.112
</TABLE>
<TABLE>
<CAPTION>
LESS DISTRIBUTIONS
------------------------------------------------------------
NET
DISTRIBUTIONS INCREASE
DIVIDENDS FROM NET (DECREASE)
FROM NET REALIZED DISTRIBUTIONS RETURN IN
YEAR ENDED INVESTMENT CAPITAL IN OF TOTAL NET ASSET
DECEMBER 31, INCOME GAINS EXCESS CAPITAL DISTRIBUTIONS VALUE
- --------------------------- ----------- -------------- ----------------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Select Aggressive
Growth Fund/(1)/
1997 $ -- $(0.182) $(0.008)/(3)/ $-- $(0.190) $ 0.188
1996 -- (0.153) -- -- (0.153) 0.189
1995 -- -- -- -- -- 0.451
1994 -- -- -- -- -- (0.034)
1993 (0.001) -- -- -- (0.001) 0.234
1992 (0.001) -- -- -- (0.001) 0.197
Select Capital
Appreciation Fund/(1)/
1997 -- -- -- -- -- 0.213
1996 -- (0.005) -- -- (0.005) 0.116
1995 -- (0.027) -- -- (0.027) 0.369
Select Value
Opportunity Fund/(1)/
1997 (0.010) (0.249) -- -- (0.259) 0.115
1996 (0.011) (0.069) -- -- (0.080) 0.273
1995 (0.009) (0.033) (0.001)/(3)/ -- (0.043) 0.149
1994 (0.005) -- -- -- (0.005) (0.081)
1993 (0.002) (0.006) -- -- (0.008) 0.170
Select International
Equity Fund/(1)/
1997 (0.019) (0.046) (0.014)/(4)/ -- (0.079) (0.015)
1996 (0.012) (0.003) (0.014)/(4)/ -- (0.029) 0.220
1995 (0.011) (0.005) -- -- (0.016) 0.173
1994 (0.001) (0.001) -- -- (0.002) (0.037)
Select Growth
Fund/(1)/
1997 (0.006) (0.099) -- -- (0.105) 0.381
1996 (0.005) (0.236) -- -- (0.241) 0.061
1995 -- -- -- -- -- 0.270
1994 (0.003) -- -- -- (0.003) (0.020)
1993 (0.001) -- -- -- (0.001) 0.008
1992 (0.001) -- -- -- (0.001) 0.111
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not Annualized
(A) Including reimbursements, waivers, and reductions.
(B) Excluding reductions. Certain Portfolios have entered into varying
arrangements with brokers who reduced a portion of the Portfolio's expenses.
(C) Excluding reimbursements and reductions.
(D) For fiscal years beginning on or after September 1, 1995, a Portfolio is
required to disclose its average commission rate per share for trades for
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
(1) The Select Aggressive Growth Fund commenced operations on August 21, 1992.
The Select Capital Appreciation Fund commenced operations on April 28, 1995.
The Select Value Opportunity Fund (formerly the Small-Mid Cap Value Fund)
commenced operations on April 30, 1993 and changed investment sub-adviser on
January 1, 1997. The Select International Equity Fund commenced operations
on May 2, 1994. The Select Growth Fund commenced operations on August
21, 1992 and changed investment sub-adviser on July 1, 1996.
(2) Net investment income per share before reimbursement of fees by the
investment adviser or reductions were $(0.010) in 1997, $0.000 in 1993 and
$(0.001) in 1992 for Select Aggressive Growth Fund; $(0.001) in 1995 for
Select Capital Appreciation Fund; $0.009 in 1997, $0.010 in 1996, $0.005 in
1994 and $(0.001) in 1993 for Select Value Opportunity Fund; $0.015 in 1997,
$0.011 in 1996 and $0.002 in 1994 for Select International Equity Fund; and
$0.006 in 1997, $0.005 in 1996, $0.001 in 1993 and $0.000 in 1992 for Select
Growth Fund.
(3) Distributions in excess of net realized capital gains.
(4) Distributions in excess of net investment income.
4
- --------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------------------------------------
NET ASSET NET ASSETS
VALUE END OF NET PORTFOLIO AVERAGE
END OF TOTAL YEAR INVESTMENT OPERATING EXPENSES MANAGEMENT FEES TURNOVER COMMISSIONS
YEAR RETURN (000'S) INCOME (A) (B) (C) GROSS NET RATE RATE/(D)/
---- ------ ------- ------ --- --- --- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2.225 18.71% $604,123 (0.45)% 0.99% 1.04% 1.04% 0.95% 0.95% 95% $0.0617
2.037 18.55% 407,442 (0.53)% 1.08% 1.08% 1.08% 1.00% 1.00% 113% 0.0597
1.848 32.28% 254,872 (0.07)% 1.09% -- 1.09% 1.00% 1.00% 104% --
1.397 (2.31)% 136,573 (0.21)% 1.16% -- 1.16% 1.00% 1.00% 100% --
1.431 19.51% 66,251 0.10% 1.19% -- 1.23% 1.00% 0.96% 76% --
1.197 19.85%** 9,270 0.34%* 1.35%* -- 1.88%* N/A N/A 33% --
1.698 14.28% 240,526 (0.38)% 1.13% 1.13% 1.13% 0.98% 0.98% 133% 0.0444
1.485 8.80% 142,680 (0.32)% 1.13% 1.13% 1.13% 1.00% 1.00% 98% 0.0414
1.369 39.56%** 41,376 (0.25)%* 1.35%* -- 1.42%* 1.00%* 0.93%* 95% --
1.626 24.85% 202,139 0.73% 0.98% 1.04% 1.06% 0.92% 0.90% 110% 0.0587
1.511 28.53% 113,969 0.91% 0.95% 0.97% 0.97% 0.85% 0.85% 20% 0.0497
1.238 17.60% 64,575 0.86% 1.01% -- 1.01% 0.85% 0.85% 17% --
1.089 (6.51)% 41,342 0.64% 1.08% -- 1.09% 0.85% 0.84% 4% --
1.170 17.74%** 12,731 0.52%* 1.22%* -- 2.03%* 0.85%* 0.04%* 8% --
1.341 4.65% 397,915 1.17% 1.15% 1.17% 1.17% 0.97% 0.97% 20% 0.0229
1.356 21.94% 246,877 1.22% 1.20% 1.23% 1.23% 1.00% 1.00% 18% 0.0248
1.136 19.63% 104,312 1.68% 1.24% -- 1.24% 1.00% 1.00% 24% --
0.963 (3.49)%** 40,498 0.87%* 1.50%* -- 1.78%* 1.00%* 0.72%* 19% --
1.811 34.06% 470,356 0.42% 0.91% 0.93% 0.93% 0.85% 0.85% 75% 0.0470
1.430 22.02% 228,551 0.38% 0.92% 0.93% 0.93% 0.85% 0.85% 159% 0.0457
1.369 24.59% 143,125 0.02% 0.97% -- 0.97% 0.85% 0.85% 51% --
1.099 (1.49)% 88,263 0.37% 1.03% -- 1.03% 0.85% 0.85% 55% --
1.119 0.84% 53,854 0.15% 1.05% -- 1.08% 0.85% 0.82% 65% --
1.111 11.25%** 9,308 0.40%* 1.20%* -- 1.72%* N/A N/A 3% --
</TABLE>
5
--------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Year
-------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED
VALUE NET GAIN (LOSS) TOTAL FROM
YEAR ENDED BEGINNING INVESTMENT ON INVESTMENT
DECEMBER 31, OF YEAR INCOME/(2)/ INVESTMENTS OPERATIONS
- --------------------------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Select Growth and
Income Fund/(1)/
1997 $1.405 $0.020 $ 0.293 $ 0.313
1996 1.268 0.020 0.246 0.266
1995 1.027 0.019 0.290 0.309
1994 1.069 0.025 (0.018) 0.007
1993 0.990 0.023 0.079 0.102
1992 1.000 0.008 (0.009) (0.001)
Select Income Fund/(1)/
1997 0.995 0.060 0.028 0.088
1996 1.024 0.061 (0.029) 0.032
1995 0.930 0.060 0.095 0.155
1994 1.035 0.055 (0.105) (0.050)
1993 0.988 0.052 0.055 0.107
1992 1.000 0.018 (0.012) 0.006
Money Market
Fund
1997 1.000 0.053 -- 0.053
1996 1.000 0.052 -- 0.052
1995 1.000 0.057 -- 0.057
1994 1.000 0.039 -- 0.039
1993 1.000 0.030 -- 0.030
1992 1.000 0.037 -- 0.037
1991 1.000 0.060 -- 0.060
1990 1.000 0.078 -- 0.078
1989 1.000 0.086 -- 0.086
1988 1.000 0.071 -- 0.071
</TABLE>
<TABLE>
<CAPTION>
LESS DISTRIBUTIONS
----------------------------------------------------------
NET
DISTRIBUTIONS INCREASE
DIVIDENDS FROM NET (DECREASE)
FROM NET REALIZED DISTRIBUTIONS IN
YEAR ENDED INVESTMENT CAPITAL IN RETURN OF TOTAL NET ASSET
DECEMBER 31, INCOME GAINS EXCESS CAPITAL DISTRIBUTIONS VALUE
- --------------------------- ----------- -------------- ------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Select Growth and
Income Fund/(1)/
1997 $(0.020) $(0.146) $ -- $ -- $(0.166) $ 0.147
1996 (0.020) (0.109) -- -- (0.129) 0.137
1995 (0.019) (0.049) -- -- (0.068) 0.241
1994 (0.025) (0.017) (0.007)/(3)/ -- (0.049) (0.042)
1993 (0.023) -- -- -- (0.023) 0.079
1992 (0.008) (0.001) -- -- (0.009) (0.010)
Select Income Fund/(1)/ -- -- -- (0.061) 0.027
1997 (0.061) -- -- -- (0.061) (0.029)
1996 (0.061) -- (0.001)/(4)/ -- (0.061) 0.094
1995 (0.060) -- -- -- (0.055) (0.105)
1994 (0.055) (0.008) -- -- (0.060) 0.047
1993 (0.052) -- -- -- (0.018) (0.012)
1992 (0.018)
Money Market
Fund
1997 (0.053) -- -- -- (0.053) --
1996 (0.052) -- -- -- (0.052) --
1995 (0.057) -- -- -- (0.057) --
1994 (0.039) -- -- -- (0.039) --
1993 (0.030) -- -- -- (0.030) --
1992 (0.037) -- -- -- (0.037) --
1991 (0.060) -- -- -- (0.060) --
1990 (0.078) -- -- -- (0.078) --
1989 (0.086) -- -- -- (0.086) --
1988 (0.071) -- -- -- (0.071) --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not Annualized
(A) Including reimbursements and reductions.
(B) Excluding reductions. Certain Portfolios have entered into varying
arrangements with brokers who reduced a portion of the Portfolio's expenses.
(C) Excluding reimbursements and reductions.
(D) For fiscal years beginning on or after September 1, 1995, a Portfolio is
required to disclose its average commission rate per share for trades for
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
(1) The Select Growth and Income Fund and Select Income Fund commenced
operations on August 21, 1992.
(2) Net investment income per share before reimbursement of fees by the
investment adviser or reductions were $0.019 in 1997, $0.019 in 1996, $0.023
in 1993 and $0.005 in 1992 for Select Growth and Income Fund; $0.060 in
1995, $0.055 in 1994, $0.050 in 1993, and $0.015 in 1992 for Select Income
Fund; and $0.030 in 1993 and $0.084(5) in 1998 for Money Market Fund.
(3) Distributions in excess of net realized capital gains.
(4) Distributions in excess of net investment income.
(5) Unaudited.
6
- --------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-----------------------------------
NET ASSET NET ASSETS
VALUE END OF NET
END OF TOTAL YEAR INVESTMENT OPERATING EXPENSES
YEAR RETURN (000'S) INCOME (A)
---- ------ ------- ------ ---
<S> <C> <C> <C> <C>
$ 1.552 22.51% $473,552 1.34% 0.77%
1.405 21.26% 295,638 1.44% 0.80%
1.268 30.32% 191,610 1.69% 0.85%
1.027 0.73% 110,213 2.51% 0.91%
1.069 10.37% 60,518 2.73% 0.99%
0.990 (0.11)%** 7,302 3.20%* 1.10%*
1.022 9.17% 104,253 6.12% 0.72%
0.995 3.32% 77,498 6.29% 0.74%
1.024 16.96% 60,368 6.24% 0.79%
0.930 (4.82)% 40,784 6.07% 0.83%
1.035 10.95% 25,302 5.91% 0.91%
0.988 0.62%** 5,380 5.38%* 1.00%*
1.000 5.47% 260,620 5.33% 0.35%
1.000 5.36% 217,256 5.22% 0.34%
1.000 5.84% 155,211 5.68% 0.36%
1.000 3.93% 95,991 3.94% 0.45%
1.000 3.00% 71,052 2.95% 0.42%
1.000 3.78% 64,506 3.65% 0.44%
1.000 6.67% 39,909 5.98% 0.43%
1.000 8.63% 28,330 8.22% 0.42%
1.000 9.69% 12,060 8.62% 0.58%
1.000 7.30%(5) 7,156 7.13% 0.60%
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
---------------------------------------
PORTFOLIO AVERAGE
OPERATING EXPENSES MANAGEMENT FEES TURNOVER COMMISSIONS
(B) (C) GROSS NET RATE RATE/(D)/
--- --- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C>
0.80% 0.80% 0.73% 0.73% 71% $0.0569
0.83% 0.83% 0.75% 0.75% 78% 0.0563
-- 0.85% 0.75% 0.75% 112% --
-- 0.91% 0.75% 0.75% 107% --
-- 1.03% 0.75% 0.71% 25% --
-- 2.37%* N/A N/A 4% --
0.72% 0.72% 0.59% 0.59% 79% --
0.74% 0.74% 0.60% 0.60% 108% --
-- 0.80% 0.60% 0.59% 131% --
-- 0.85% 0.60% 0.58% 105% --
-- 1.08% 0.60% 0.43% 171% --
-- 1.67%* N/A N/A 119% --
0.35% 0.35% 0.27% 0.27% N/A --
0.34% 0.34% 0.28% 0.28% N/A --
-- 0.36% 0.29% 0.29% N/A --
-- 0.45% 0.31% 0.31% N/A --
-- 0.43% 0.32% 0.31% N/A --
-- 0.44% N/A N/A N/A --
-- 0.43% N/A N/A N/A --
-- 0.42% N/A N/A N/A --
-- 0.58% N/A N/A N/A --
-- 0.71% N/A N/A N/A --
</TABLE>
7
--------------------------
Allmerica Investment Trust
<PAGE>
HOW ARE THE FUNDS MANAGED?
The overall responsibility for the supervision of the affairs of the Trust
vests in the Board of Trustees of the Trust which meets on a quarterly basis.
Allmerica Financial Investment Management Services, Inc. (the "Manager") is
responsible for the management of the Trust's day-to-day business affairs and
has general responsibility for the management of the investments of the Funds.
The Manager, at its expense, has contracted with certain Sub-Advisers to manage
the investments of the Funds subject to the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act").
The Manager is an indirect, wholly-owned subsidiary of Allmerica Financial
Corporation ("AFC"), a Delaware holding company for a group of affiliated
companies, the largest of which is First Allmerica, a life insurance company
organized in Massachusetts in 1844. The Manager, AFC and First Allmerica are
located at 440 Lincoln Street, Worcester, Massachusetts 01653. The Manager
succeeded Allmerica Investment Management Company, Inc. ("AIMCO") as manager of
the Trust on April 16, 1998. As part of a reorganization, AIMCO transferred to
the Manager that portion of its business relating to the provision of investment
advisory services exclusively to investment companies registered under the 1940
Act such as the Trust while AIMCO retained its financial planning business. The
same personnel and procedures previously employed by AIMCO to service the Trust
will be used by the Manager. The Manager also serves as investment manager of
the Palladian Trust, another open-end investment company.
The Manager has entered into Sub-Adviser Agreements for the management of the
investments of each of the Funds. Each Sub-Adviser, which has been selected on
the basis of various factors, including management experience, investment
techniques, and staffing, is authorized to engage in portfolio transactions on
behalf of the applicable Fund subject to such general or specific instructions
as may be given by the Trustees and/or the Manager. The terms of a Sub-Adviser
Agreement cannot be changed materially without the approval of a majority
interest of the shareholders of the affected Fund. The Trust and Manager have
filed an application with the SEC for an order of exemption that would permit
the Manager to enter into and materially amend sub-advisory agreements with non-
affiliated Sub-Advisers without obtaining shareholder approval. If the requested
relief is granted by the SEC, the Manager will have the ability, subject to
approval of the Trustees, to hire and terminate Sub-Advisers to the Funds and to
change materially the terms of the Sub-Advisory Agreements, including the
compensation paid to the Sub-Advisers, without the approval of the shareholders
of the Funds. The Sub-Advisers have been selected by the Manager and Trustees in
consultation with BARRA RogersCasey, Inc. ("BARRA RogersCasey"), a pension
consulting firm. BARRA RogersCasey is wholly controlled by BARRA, Inc. The cost
of such consultation is borne by the Manager.
BARRA RogersCasey provides consulting services to pension plans representing
hundreds of billions of dollars in total assets and, in its consulting capacity,
monitors the investment performance of over 1,000 investment advisers. As a
consultant, BARRA RogersCasey has no decision-making authority with respect to
the Funds, and is not responsible for advice provided by the Manager or the Sub-
Advisers. From time to time, specific clients of BARRA RogersCasey and the Sub-
Advisers will be named in sales materials.
Ongoing performance of the Sub-Advisers is reviewed and evaluated by a
committee of the Board of Trustees, which also includes members who are officers
of First Allmerica or its affiliates, in consultation with BARRA RogersCasey.
Historical performance data for all Funds is set forth under "Financial
Highlights." The Manager is responsible for the payment of all fees to the Sub-
Advisers. The Sub-Advisers for each of the Funds are as follows:
<TABLE>
<CAPTION>
<S> <C>
Select Emerging Markets Fund Schroder Capital Management International Inc.
Select Aggressive Growth Fund Nicholas-Applegate Capital Management, L.P.
Select Capital Appreciation Fund T. Rowe Price Associates, Inc.*
Select Value Opportunity Fund Cramer Rosenthal McGlynn, LLC**
Select International Equity Fund Bank of Ireland Asset Management (U.S.) Limited
Select Growth Fund Putnam Investment Management, Inc.
Select Strategic Growth Fund Cambiar Investors, Inc.
Select Growth and Income Fund John A. Levin & Co., Inc.
Select Income Fund Standish, Ayer & Wood, Inc.
Money Market Fund Allmerica Asset Management, Inc.
</TABLE>
----------------------------------------
* T. Rowe Price Associates, Inc. assumed Sub-Adviser responsibilities from
Janus Capital Corporation on April 1, 1998. The Sub-Adviser Agreement
between T. Rowe Price Associates, Inc. and the Manager is subject to
shareholder approval at a meeting scheduled for June 3, 1998.
** Cramer Rosenthal McGlynn, LLC assumed Sub-Adviser responsibilities from CRM
Advisors, LLC on January 2, 1998.
8
- --------------------------
Allmerica Investment Trust
<PAGE>
For a sample listing of certain of the Sub-Advisers' clients, see "Investment
Management and Other Services" in the SAI. For more information on each of the
Sub-Advisers, see "What Are the Investment Objectives and Policies?" and "Fund
Manager Information."
The Manager also has entered into an Administrative Services Agreement with
First Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-
owned subsidiary of First Data Corporation, whereby Investor Services Group
performs administrative services for each of the Funds and is entitled to
receive an administrative fee and certain out-of-pocket expenses. The Manager is
responsible for the payment of the administrative fee to Investor Services
Group.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
Each Fund has a separate investment objective and policies designed to meet
different investment and financial needs, as described below. There is no
assurance that a Fund will achieve its investment objective.
A Fund's investment objective and investment policies are not fundamental and
may be changed without shareholder approval.
SELECT EMERGING MARKETS FUND
Investment Objective: The Select Emerging Markets Fund seeks long-term growth
of capital by investing in the world's emerging markets.
Sub-Adviser: Schroder Capital Management International Inc. ("SCMI") serves as
Sub-Adviser to the Select Emerging Markets Fund. SCMI, a wholly-owned U.S.
subsidiary of Schroders U.S. Holdings Inc., the indirect wholly-owned U.S.
subsidiary of Schroders plc, was organized in 1980 as an investment adviser and
had more than $25 billion in assets under management as of December 31, 1997.
SCMI provides global equity and fixed income management services to North
American state and local governments, corporations, endowments, foundations,
investment companies and family trusts. Its main U.S. offices are located at
787 Seventh Avenue, New York, New York 10019.
Investment Policies: Under normal circumstances, the Fund invests at least 65%
of its total assets in equity securities of companies that are domiciled or
primarily doing business in developing countries with emerging markets, which
include those in the Morgan Stanley Capital International Emerging Markets Free
Index ("MSCI EMF"). Investments are not limited to one or more specific regions
because the Sub-Adviser believes that emerging market investment opportunities
can be found throughout the world. The Fund ordinarily maintains investments in
at least five developing countries.
A company is considered to be domiciled in a developing country if it is
organized under the laws of, or has a principal office in, that country. A
company is considered as primarily doing business in a developing country if (i)
the company derives at least 50% of its gross revenues or profits from either
goods or services produced or sold in the developing country or (ii) at least
50% of the company's assets are situated in the developing country.
The Fund may invest in the following types of equity securities: common stock,
preferred stock, securities convertible into common stock, rights and warrants
to acquire such securities and substantially similar forms of equity with
comparable risk characteristics.
The Fund invests in those emerging markets that the Sub-Adviser believes have
strongly developing economies and potential for long-term future growth. In
selecting securities for investment in the Fund, the Sub-Adviser assesses the
general attractiveness of specific countries based on an analysis of various
factors, including political stability, financial practices, economic prospects,
interest rates and inflation, general market valuations and potential currency
movements. Investments are made in those companies that the Sub-Adviser
believes are best positioned and managed to achieve above-average growth.
The Fund may also invest up to 35% of its total assets in debt securities of
government or corporate issuers in emerging markets, equity and debt securities
of issuers in developed countries, including the United States, and cash and
money market instruments. Some or all of the debt securities held by the Fund
may be rated below investment grade. These securities, commonly known as "junk
bonds", involve significant risks as discussed under "Certain Investment
Strategies and Policies-High Yield Securities." Emerging market debt securities
often are rated below investment grade or not rated by U.S. rating agencies.
Pending investment of proceeds from new sales of Fund shares or to meet daily
cash needs, the Fund may hold cash and money market instruments.
The Sub-Adviser may employ a temporary defensive strategy if deemed by it to
be appropriate due to economic or political conditions in emerging markets. When
using a defensive strategy, the Fund may invest up to 100% of its assets in
cash, high-quality
9
--------------------------
Allmerica Investment Trust
<PAGE>
debt securities or money market instruments of U.S. or foreign issuers. In
addition, most or all of its investments may be made in the United States and in
U.S. dollars for temporary defensive purposes.
The Fund may invest up to 15% of its net assets in securities which are
illiquid and may engage in the options and futures strategies and currency
hedging techniques described under "Certain Investment Strategies and Policies-
Options and Futures Transactions" and "Hedging Techniques and Investment
Practices."
Investing in the Fund entails a substantial degree of risk. Investors are
strongly advised to consider carefully the special risks involved in investing
in emerging markets, which are in addition to the usual risks of investing in
developed countries around the world. See "Certain Investment Strategies and
Policies-Foreign Securities." The portfolio turnover rate for the Fund may vary
greatly from year to year.
SELECT AGGRESSIVE GROWTH FUND
Investment Objective: The Select Aggressive Growth Fund seeks above-average
capital appreciation by investing primarily in common stocks of companies which
are believed to have significant potential for capital appreciation.
Sub-Adviser: Nicholas-Applegate Capital Management, L.P. ("NACM") serves as Sub-
Adviser to the Select Aggressive Growth Fund. NACM is an investment manager
supervising accounts with assets totaling approximately $30 billion in total
assets as of December 31, 1997. NACM's clients are primarily major corporate
employee benefit funds, public employee retirement plans, foundations and
endowment funds, investment companies and individuals. Founded in 1984, NACM is
located at 600 West Broadway, Suite 2900, San Diego, California 92101.
Investment Policies: Under normal circumstances, at least 65% of the assets of
the Select Aggressive Growth Fund will be invested in equity securities
consisting of common stocks, securities convertible into common stocks
(including bonds, notes and preferred stocks), and warrants. The Fund's assets
may also be invested in other debt securities and preferred stocks when such
securities are believed appropriate in light of the Fund's investment objective
and market conditions.
The selection of securities is made solely on the basis of their potential for
capital appreciation. Dividend and interest income from portfolio securities, if
any, is incidental to the Fund's investment objective. While investments may be
made in well-known and established companies, a significant portion of the
Fund's investments is expected to be in securities of newer and relatively
unseasoned companies or companies which represent new or changing industries.
At any given point, a substantial portion of the Fund's equity investments may
be in securities which are not listed for trading on national securities
exchanges and which, although publicly traded, may be less liquid than
securities issued by larger, more seasoned companies which trade on national
securities exchanges. Up to 15% of the Fund's net assets may be invested in
securities which are illiquid.
Securities of newer companies may be closely held with only a small portion of
their outstanding securities owned by the general public. Newer companies may
have relatively small revenue, lack depth of management and have a small share
of the market for their products or services; thus, they may be more vulnerable
to changes in economic conditions, market fluctuations and other factors
affecting the profitability or marketability of companies. Due to these and
other factors, the price movement of the securities held by the Fund can be
expected to be more volatile than is the case for the market as a whole, and the
net asset value of a share of the Fund may fluctuate significantly.
Consequently, the Fund should not be considered suitable for investors who are
unable or unwilling to assume the risk of loss inherent in an aggressive growth
portfolio, nor should investment in the Fund be considered a balanced or
complete investment program.
When NACM determines that market conditions warrant a temporary, defensive
position, the Fund may invest without limitation in high-grade, fixed-income
securities or U.S. Government securities or hold assets in cash or cash
equivalents. For hedging purposes, the Fund may engage in the options and
futures strategies described under "Certain Investment Strategies and Policies."
The Fund may also invest up to 25% of its assets in foreign securities (not
including its investments in American Depositary Receipts ("ADRs")).
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 95%. The portfolio turnover rate was the result of the Sub-
Adviser's investment process which typically results in above-average portfolio
turnover. Portfolio turnover rates may vary greatly from year to year. A high
portfolio turnover rate will likely result in greater brokerage costs to the
Fund.
10
- --------------------------
Allmerica Investment Trust
<PAGE>
SELECT CAPITAL APPRECIATION FUND
Investment Objective: The Select Capital Appreciation Fund seeks long-term
growth of capital in a manner consistent with the preservation of capital.
Realization of income is not a significant investment consideration and any
income realized on the Fund's investments will be incidental to its primary
objective.
Sub-Adviser: T. Rowe Price Associates, Inc. ("T. Rowe Price") serves as Sub-
Adviser to the Select Capital Appreciation Fund. Founded in 1937, T. Rowe Price
is a publicly held company located at 100 East Pratt Street, Baltimore, Maryland
21202. As of December 31, 1997, T. Rowe Price and its affiliates managed assets
totaling approximately $125 billion for more than five million individual and
institutional investor accounts. T. Rowe Price International Series, Inc., an
investment company managed by a T. Rowe Price affiliate, is currently used as an
investment vehicle for certain insurance products sponsored by First Allmerica
and Allmerica Financial Life. In addition, the same T. Rowe Price affiliate
currently serves as investment adviser to a corporate investment account of
AFC.
Investment Policies: The Fund invests in common stocks when the Sub-Adviser
believes that the relevant market environment favors profitable investing in
those securities. The Fund pursues its objective normally by investing at least
50% of its equity assets in securities issued by medium-sized companies. Medium-
sized companies are those whose market capitalizations fall within the range of
companies in the S&P MidCap 400 Index (the "MidCap Index"). Companies whose
capitalization falls outside this range after the Fund's initial purchase
continue to be considered medium-sized companies for the purpose of this policy.
As of December 31, 1997, the MidCap Index included companies with
capitalizations between approximately $200 million to $12 billion. The range of
the MidCap Index is expected to change on a regular basis. Subject to the above
policy, the Fund may also invest in smaller or large issuers. Common stock
investments are selected in industries and companies that the Sub-Adviser
believes are experiencing favorable demand for their products and services and
which operate in a favorable competitive environment and regulatory climate. The
Sub-Adviser's analysis and selection process focuses on stocks with earnings
growth potential that may not be recognized by the market. Such securities are
selected solely for their capital growth potential; investment income is not a
consideration. Medium-sized companies may suffer more significant losses as well
as realize more substantial growth than larger issuers; thus, investments in
such companies tend to be more volatile and somewhat speculative.
The selection criteria for domestic issuers apply equally to stocks of foreign
issuers. In addition, factors such as expected levels of inflation; government
policies influencing business conditions; the outlook for currency relationships
and prospects for relative economic growth among countries, regions or
geographic areas may warrant greater consideration in selecting foreign stocks.
The Fund may invest without limitation in foreign securities. The Fund may
invest directly in foreign securities denominated in foreign currency and not
publicly traded in the United States. The Fund also may purchase foreign
securities through ADRs, European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs"), and other types of receipts or shares evidencing
ownership of the underlying foreign securities. In addition, the Fund may invest
indirectly in foreign securities through foreign investment funds or trusts
(including passive foreign investment companies). Certain state insurance
regulations may impose additional restrictions on the Fund's holdings of foreign
securities. Investments in foreign securities carry additional risks not present
in domestic securities. See "Certain Investment Strategies and Policies -
Foreign Securities."
Although the Fund normally invests primarily in common stocks, the Fund's cash
position may increase when the Sub-Adviser is unable to locate investment
opportunities with desirable risk/reward characteristics. The Fund also may
invest in preferred stocks, warrants, government securities, corporate bonds and
debentures, high-grade commercial paper, certificates of deposit, other debt
securities, or repurchase agreement or reverse repurchase agreements when the
Sub-Adviser perceives an opportunity for capital growth from such securities or
so that the Fund may receive a return on its idle cash. The Fund also may invest
up to 35% of its assets in such lower-rated securities commonly known as "junk
bonds." Fixed-income securities rated in the fourth highest grade by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Service, a
division of McGraw-Hill Companies, Inc. ("S&P"), (Baa and BBB, respectively) are
investment grade but are considered to have some speculative characteristics.
Lower-rated securities or "junk bonds" (rated Ba/BB or lower) involve the risks
discussed under "Certain Investment Strategies and Policies-High Yield
Securities." When the Fund invests in such securities, investment income will
increase and may constitute a large portion of the return realized by the Fund
and the Fund probably will not participate in market advances or declines to the
extent that it would if it remained fully invested in common stocks. Up to 15%
of the Fund's net assets may be invested in securities which are illiquid.
The Fund may invest in "special situations" from time to time. A special
situation arises when, in the opinion of the Sub-Adviser, the securities of a
particular issuer will be recognized and appreciate in value due to a specific
development with respect to that issuer. Developments creating a special
situation might include, among others, a new product or process, a technological
breakthrough, a management change or other extraordinary corporate event, or
differences in market supply of and demand for the security. Investment in
special situations may carry an additional risk of loss in the event that the
anticipated development does not occur or does not attract the expected
attention.
11
--------------------------
Allmerica Investment Trust
<PAGE>
For hedging purposes, the Fund may engage in options and futures strategies
and may utilize forward contracts, interest rate swaps and swap-related
products. See "Certain Investment Strategies and Policies." For the fiscal year
ended December 31, 1997, the portfolio turnover rate for the Fund was 133%. The
portfolio turnover rate was the result of the investment approach of Janus
Capital Corporation ("JCC"), the Fund's previous Sub-Adviser, which typically
resulted in above-average portfolio turnover as securities were sold when the
Sub-Adviser believed the reasons for their initial purchase were no longer valid
or when it believed that the sale of a security owned by the Fund and the
purchase of another security could enhance return. JCC was replaced by T. Rowe
Price as Sub-Adviser for the Fund effective April 1, 1998. Portfolio turnover
rates may vary greatly from year to year. A high portfolio turnover rate will
likely result in greater brokerage costs to the Fund.
SELECT VALUE OPPORTUNITY FUND (FORMERLY KNOWN AS "SMALL-MID CAP VALUE FUND")
Investment Objective: The Select Value Opportunity Fund seeks long-term growth
of capital by investing primarily in a diversified portfolio of common stocks of
small and mid-size companies, whose securities at the time of purchase are
considered by the Sub-Adviser to be undervalued.
Sub-Adviser: Cramer Rosenthal McGlynn, LLC ("CRM") serves as Sub-Adviser to the
Select Value Opportunity Fund. CRM provides advisory and sub-advisory services
to mutual funds with a total of over $500 million in assets under management as
of December 31, 1997. CRM is owned by its active investment professionals,
Cramer Rosenthal McGlynn, Inc. ("Cramer Rosenthal") and WT Investments, Inc., an
indirect, wholly-owned subsidiary of Wilmington Trust Corporation. Founded in
1973, Cramer Rosenthal had over $3.7 billion in assets under management as of
December 31, 1997 and provides investment advice to individuals, state and local
government agencies, pension and profit sharing plans, trusts, estates,
endowments and other organizations. The Sub-Adviser is located at 707
Westchester Avenue, White Plains, New York 10604.
Investment Policies: A stock will be considered to be attractively valued and,
therefore, eligible for investment in the Fund, if it is trading at a price
which the Sub-Adviser believes is reasonable relative to its own past valuation
history as well as compared to a large universe of stocks selected by the Sub-
Adviser, based on one or more of the following comparisons:
1. price relative to cash flow;
2. price relative to earnings;
3. price relative to sales; and
4. price relative to assets as measured by book value.
The Select Value Opportunity Fund generally intends to invest at least 65% of
its total assets in stocks of companies with market capitalization between $200
million and $5 billion at the time of purchase and which are listed on a
national or regional exchange or over-the-counter with prices quoted daily in
the financial press. The Fund at times may invest temporarily in preferred
stocks, bonds or other defensive issues. Normally, however, the Fund will
maintain at least 80% of the portfolio in common stocks. There are no
restrictions or guidelines regarding the investment of Fund assets in shares
listed on an exchange or traded over-the-counter. The Fund may invest up to 25%
of its assets in foreign securities (not including its investments in ADRs).
The Select Value Opportunity Fund seeks investment opportunities in companies
whose stocks are trading at attractive valuations relative to the market as a
whole. The most attractive of these companies often exist among those securities
which have been out of favor, where Wall Street coverage is limited and where
there is a degree of misunderstanding or neglect resulting in low expectations.
Value investing may reduce downside risk while offering potential for capital
appreciation as a company gains favor among other investors and its stock price
rises. The portfolio normally will be diversified among different industry
sectors, but is not an index approach. Stocks are bought as investments and
generally held for the long term, rather than as active trading vehicles.
Small-mid cap companies may present greater opportunities for capital
appreciation, but also may involve greater risk. Smaller cap companies, when
compared with larger cap companies, may be more dependent upon a single product,
have limited financial resources, have fewer securities outstanding, experience
greater price fluctuations and be somewhat less liquid than securities of larger
companies.
The Fund may invest up to 15% of its net assets in securities which are
illiquid.
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 110%. The portfolio turnover rate for the Fund may vary from year
to year. The Fund experienced such a rate of turnover due to a new Sub-Adviser
assuming responsibility for the Fund on January 1, 1997 and subsequently
repositioning the portfolio.
12
- --------------------------
Allmerica Investment Trust
<PAGE>
SELECT INTERNATIONAL EQUITY FUND
Investment Objective: The Select International Equity Fund seeks maximum long-
term total return (capital appreciation and income) primarily by investing in
common stocks of established non-U.S. companies.
Sub-Adviser: Bank of Ireland Asset Management (U.S.) Limited ("BIAM") serves as
Sub-Adviser for the Select International Equity Fund. BIAM is an indirect
wholly-owned subsidiary of Bank of Ireland. Its main offices are at 26
Fitzwilliam Place, Dublin 2, Ireland. Its U.S. headquarters are at 20 Horseneck
Lane, Greenwich, CT 06830. Bank of Ireland provides investment management
services through a network of affiliated companies, including BIAM which
represents North American clients. As of December 31, 1997, Bank of Ireland
managed approximately $27 billion in global securities for Irish, United
Kingdom, European, Australian, South African, Canadian and U.S. clients.
Investment Policies: To achieve its objective, the Select International Equity
Fund will invest primarily in common stocks of established non-U.S. companies.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in the securities of companies domiciled in at least five foreign
countries, not including the United States. The Fund may also acquire fixed-
income debt securities. It will do so, at the discretion of BIAM, primarily for
defensive purposes. The Fund may invest up to 15% of its net assets in
securities which are illiquid.
The Fund's investments may include ADRs which may be sponsored or unsponsored
by the underlying issuer. The Fund may also utilize EDRs, which are similar to
ADRs, in bearer form, designed for use in the European securities market and
GDRs. Investments in foreign securities carry additional risks not present in
domestic securities. See "Certain Investment Strategies and Policies - Foreign
Securities." For hedging purposes, the Fund may engage in the options and
futures strategies described under "Certain Investment Strategies and Policies."
Certain state insurance regulations may impose additional restrictions on the
Fund's holdings of foreign securities.
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 20%. The portfolio turnover rate for the Fund may vary greatly from
year to year.
SELECT GROWTH FUND
Investment Objective: The Select Growth Fund seeks to achieve long-term growth
of capital by investing in a diversified portfolio consisting primarily of
common stocks selected on the basis of their long-term growth potential.
Sub-Adviser: Putnam Investment Management, Inc. ("Putnam"), One Post Office
Square, Boston, Massachusetts 02109, serves as Sub-Adviser to the Select Growth
Fund. Putnam has been an investment manager since 1937. As of December 31, 1997,
Putnam and its affiliates had assets under management of approximately $235
billion. Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., a
holding company which, other than a minority interest owned by employees, in
turn is wholly-owned by Marsh & McLennan Companies, Inc., a publicly-owned
holding company whose principal businesses are international insurance and
reinsurance brokerage, employee benefit consulting and investment management.
Investment Policies: The Select Growth Fund seeks to attain its objective by
investing in securities of companies that appear to have favorable long-term
growth characteristics. Potential for long-term growth is the determinative
factor in the selection of all portfolio securities. Although the Fund may
invest in dividend-paying stocks, the generation of current income is not an
objective of the Fund. Any income that is received is incidental to the Fund's
objective of long-term growth of capital.
When choosing securities for the portfolio, the Sub-Adviser for the Select
Growth Fund focuses on companies that display strong financial characteristics
and earnings growth potential whereas the Sub-Adviser for the Select Strategic
Growth Fund emphasizes value-oriented characteristics as well as growth
potential.
At least 65% of the Fund's assets under normal conditions will consist of
growth-oriented common stocks. The Fund may invest in common stocks of large
well-known companies as well as smaller growth companies, which generally
include companies with a market capitalization of $500 million or less ("smaller
growth companies"). The stocks of smaller growth companies may involve a higher
degree of risk than other types of securities and the price movement of such
securities can be expected to be more volatile than is the case of the market as
a whole. The Fund may hold stocks traded on one or more of the national
exchanges as well as in the over-the-counter markets. Because opportunities for
capital growth may exist not only in new and expanding areas of the economy but
also in mature and cyclical industries, the Fund's portfolio investments are not
limited to any particular type of company or industry. The Fund may also
purchase convertible bonds and preferred stocks, warrants and debt securities if
the Fund's Sub-Adviser believes they would help achieve the Fund's objective of
long-term growth.
13
--------------------------
Allmerica Investment Trust
<PAGE>
The Fund may invest up to 35% of its assets in both higher-rated and lower-
rated fixed-income securities in seeking its objective of long-term growth of
capital. The Fund may invest up to 15% of its assets in lower-rated securities,
commonly known as "junk bonds," which involve risks discussed under "Certain
Investment Strategies and Policies-High Yield Securities." For more information
concerning the rating categories of corporate debt securities, see the Appendix
to the Prospectus.
When the Sub-Adviser determines that market conditions warrant a temporary,
defensive position, the Fund may invest without limitation in high-grade, fixed-
income securities or U.S. Government securities, or hold assets in cash or cash
equivalents. To the extent the Fund is so invested it is not achieving its
objective to the same degree as under normal conditions. For hedging purposes,
the Fund may engage in the options and futures strategies described under
"Certain Investment Strategies and Policies."
The Select Growth Fund's objective of seeking long-term growth of capital
means that its assets generally will be subject to greater risk than may be
involved in investing in securities that are not selected for growth potential.
The Fund may invest up to 15% of its net assets in securities which are
illiquid. The Fund may also invest up to 25% of its assets in foreign securities
(not including its investments in ADRs).
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 75%. The portfolio turnover for the Fund may vary greatly from year
to year.
SELECT STRATEGIC GROWTH FUND
Investment Objective: The Select Strategic Growth Fund seeks long-term growth of
capital by investing primarily in common stocks of established companies.
Sub-Adviser: Cambiar Investors, Inc. ("Cambiar"), 8400 East Prentice Avenue,
Suite 460, Englewood, Colorado 80111, serves as Sub-Adviser to the Select
Strategic Growth Fund. Cambiar is a registered investment adviser that began
operations in 1973 and became a wholly-owned subsidiary of United Asset
Management Corporation in 1990. Cambiar manages portfolios for major corporate
clients, pension plans and financial institutions. As of December 31, 1997,
Cambiar had approximately $1.9 billion in assets under management.
Investment Policies: Under normal market conditions, the Fund invests at least
65% of its total assets in the common stocks of companies with a market
capitalization of more than $1 billion at the time of investment. In seeking to
achieve its objective, the Fund emphasizes investments in common stocks of well-
known companies that the Sub-Adviser believes have the potential for earnings
growth and capital appreciation.
In selecting stocks for the Fund, the Sub-Adviser seeks quality companies
selling at low relative valuation levels, experiencing unrecognized positive
developments and exhibiting high appreciation potential. Many of the stocks in
the Fund's portfolio are expected to pay regular dividends. However, in the
evaluation of a company, greater consideration normally is given to growth
potential than to dividend income. The Sub-Adviser believes that it is more
important to evaluate a company's probable future earnings, dividends,
competitive position and financial strength than simply to seek current dividend
income. While emphasis is placed on a company's prospects for future growth,
the Fund seeks stocks which are attractively priced relative to their
anticipated long-term value.
In addition to common stocks, the Fund may purchase preferred stocks, debt
securities and securities convertible into or exchangeable for common stocks if
the Sub-Adviser believes they would help achieve the Fund's objective. The Fund
may invest up to 20% of its assets in foreign securities (not including its
investments in ADRs) and up to 15% of its net assets in securities which are
illiquid. The Fund also may engage in options and futures strategies. See
"Certain Investment Strategies and Policies."
The Fund at any time may hold a portion of its assets in cash or money market
instruments. When a defensive position is deemed advisable, the Fund may
temporarily invest without limit in high-grade debt securities, securities of
the U.S. Government and its agencies and money market instruments, or retain
cash.
The Fund is not restricted as to portfolio turnover and will make changes in
its portfolio from time to time based on market prices, economic conditions and
other factors. The Fund generally attempts to avoid speculative securities. The
companies in which the Fund invests typically have a large number of publicly
held shares and a high trading volume, resulting in a high degree of liquidity.
The value of the Fund's investments fluctuates in response to many factors,
including activities of individual companies and general market and economic
conditions. The Sub-Adviser attempts to reduce risk through diversification of
the Fund's portfolio and thorough
14
- --------------------------
Allmerica Investment Trust
<PAGE>
research. However, there are risks inherent in the investment in any security,
including shares of the Fund, and there is no guarantee that the Fund's
investment strategies will be successful.
SELECT GROWTH AND INCOME FUND
Investment Objective: The Select Growth and Income Fund seeks a combination of
long-term growth of capital and current income. The Fund will invest primarily
in dividend-paying common stocks and securities convertible into common stocks.
Sub-Adviser: John A. Levin & Co., Inc. ("JAL"), One Rockefeller Place, 25th
Floor, New York, New York 10020, serves as Sub-Adviser to the Select Growth and
Income Fund. JAL was founded as a Delaware corporation in 1982 and is wholly
owned by Baker, Fentress & Company, a non-diversified closed-end management
investment company registered under the 1940 Act. JAL had approximately $7.4
billion in assets under management as of December 31, 1997. JAL's clients
include U.S. and foreign individuals and their related trusts and charitable
organizations, private investment partnerships, college and university
endowments, foundations and public and private pension and profit sharing plans.
Investment Policies: To achieve its objective of long-term growth of capital and
current income, the Select Growth and Income Fund will invest primarily in
dividend-paying common stocks and securities convertible into common stocks. It
may invest in a wide range of equity securities, consisting of both dividend-
paying and non-dividend-paying common stocks, preferred stocks, securities
convertible into common and preferred stocks and warrants. These may include
securities of large well-known companies as well as smaller growth companies.
The securities of smaller growth companies involve certain risks as described
above under the "Select Growth Fund." The Fund may hold securities traded on one
or more of the national exchanges as well as in the over-the-counter markets.
The Fund's portfolio investments are not limited to any particular type of
company or industry. The Fund may purchase individual stocks not presently
paying dividends which offer opportunities for capital growth or future income,
provided that the Sub-Adviser believes the overall portfolio is positioned
appropriately to achieve its income objective. To achieve current income, the
Fund may invest up to 35% of its assets in both higher-rated and lower-rated
fixed-income securities, including not more than 15% in lower-rated securities,
commonly known as "junk bonds." In certain circumstances, fixed-income
securities may be purchased by the Fund for long-term growth potential.
(However, the Fund expects to have substantially less than 35% of its assets
invested in fixed-income securities in most circumstances.) Lower-rated fixed-
income securities involve risks discussed under "Certain Investment Strategies
and Policies-High Yield Securities." For more information concerning the rating
categories of corporate debt securities, see the Appendix to the Prospectus. The
dollar average weighted maturity of the Fund's fixed-income securities will vary
depending on, among other things, current market conditions. Purchases and sales
of portfolio securities are made at such times and in such amounts as deemed
advisable in light of market, economic, and other conditions.
The Fund may invest up to 15% of its net assets in securities which are
illiquid. The Fund may also invest up to 25% of its assets in foreign securities
(not including its investments in ADRs).
When the Sub-Adviser determines that market conditions warrant a temporary,
defensive position, the Fund may invest without limitation in high-grade, fixed-
income or U.S. Government securities, or hold assets in cash or cash
equivalents. To the extent the Fund is so invested, it is not achieving its
objective to the same degree as under normal conditions. For hedging purposes,
the Fund may engage in the options and futures strategies described under
"Certain Investment Strategies and Policies." There can be no assurance of
growth of capital, of course, and, because the Fund invests a substantial
portion of its assets in common stocks and other securities which fluctuate in
value, there is substantial risk of market decline. The Fund's Sub-Adviser seeks
to minimize this risk through detailed analyses of financial markets and issuers
of equity securities and through investment in a diversified portfolio of such
securities.
For the fiscal year ended December 31, 1997, the portfolio turnover for the
Fund was 71%. The portfolio turnover rate for the Fund may vary greatly from
year to year.
SELECT INCOME FUND
Investment Objective: The Select Income Fund seeks a high level of current
income. The Fund will invest primarily in investment grade, fixed-income
securities.
Sub-Adviser: Standish, Ayer & Wood, Inc. ("SAW") serves as Sub-Adviser to the
Select Income Fund. SAW was founded in 1933 to provide investment management
services to high net worth individuals and institutions. As of December 31,
1997, total client assets exceeded $39 billion. SAW manages fixed-income
portfolios for major corporate and governmental pension plans, financial
institutions and endowment and foundation funds. Also, SAW serves as investment
adviser to an institutional account sponsored by an AFC affiliate. Through its
affiliate, Standish International Investment Management Company,
15
--------------------------
Allmerica Investment Trust
<PAGE>
L.P., SAW offers international investment services. SAW is an independent
investment counseling firm owned by its twenty-four directors who are active
with the firm. SAW is located at One Financial Center, Boston, Massachusetts
02111.
Investment Policies: Under normal circumstances, at least 65% of the Select
Income Fund's assets, at the time of investment, will be invested in investment
grade corporate debt securities and securities issued or guaranteed as to
principal or interest by the U.S. Government or its agencies or
instrumentalities. Investment grade corporate debt securities are (a) assigned a
rating within the four highest grades (Baa/BBB or higher) by either Moody's or
S&P, (b) equivalently rated by another nationally recognized statistical rating
organization ("NRSRO") or (c) unrated securities but determined by the Sub-
Adviser to be of comparable quality. Securities rated in the fourth highest
grade (rated Baa and BBB by Moody's and S&P, respectively) are considered to
have some speculative characteristics. For more information concerning the
rating categories of corporate debt securities and commercial paper, see the
Appendix to the Prospectus. The types of securities in which the Fund invests
are corporate debt obligations such as bonds, notes and debentures, and
obligations convertible into common stock; "money market" instruments, such as
bankers acceptances, or negotiable certificates of deposit issued by the 25
largest U.S. banks (in terms of deposits); commercial paper rated Prime-1 by
Moody's or A-1 by S&P; obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; asset-backed securities; mortgage-backed
securities and stripped mortgage-backed securities. The Fund may also invest in
U.S. dollar obligations of, or guaranteed by, the government of Canada or a
province of Canada or any instrumentality or political subdivision thereof, and
U.S. dollar obligations of supranational entities such as the World Bank,
European Investment Bank and African Development Bank. For more information
about asset-backed securities and mortgage-backed securities and stripped
mortgage-backed securities, see "Certain Investment Strategies and Policies."
The Fund's investments in corporate debt securities are not limited to any
particular type of company or industry.
The Fund's dollar average weighted maturity and the mix of permitted portfolio
securities as described above will vary from time to time depending, among other
things, on current market and economic conditions and the comparative yields on
instruments in different sectors, such as corporate and Treasuries, and with
different maturities. The dollar average weighted maturity of the portfolio,
excluding money market instruments, is expected to range between 5 and 20 years
under normal market conditions. The Fund may invest up to 35% of its assets in
money market instruments under normal conditions. Although the Fund does not
invest for short-term trading purposes, portfolio securities may be sold from
time to time without regard to the length of time they have been held. The value
of the Fund's portfolio securities generally will vary inversely with changes in
prevailing interest rates, declining as interest rates rise and increasing as
rates decline. The value will also be affected by other market and economic
factors. There is the risk with corporate debt securities that the issuers may
not be able to meet their obligations on interest and principal payments.
The Fund may invest up to 15% of its net assets in securities which are
illiquid. The Fund may also invest up to 25% of its assets in foreign securities
(not including its investments in ADRs).
The Fund may invest up to 25% of its assets in lower-rated securities,
commonly known as "junk bonds," which involve risks discussed under "Certain
Investment Strategies and Policies-High Yield Securities." For more information
concerning the rating categories of corporate debt securities, see the Appendix
to the Prospectus.
Obligations in which the Select Income Fund may invest include debt
obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Obligations of supranational
entities may be supported by appropriated but unpaid commitments of their member
countries, and there is no assurance that these commitments will be undertaken
or met in the future. The Fund may not invest more than 25% of its assets in
debt obligations of supranational entities.
For hedging purposes, the Fund may engage in the options and futures
strategies described under "Certain Investment Strategies and Policies."
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 79%. The portfolio turnover rate for the Fund may vary from year to
year. A high portfolio turnover rate may result in greater brokerage costs to
the Fund.
MONEY MARKET FUND
Investment Objective: The Money Market Fund seeks to obtain maximum current
income consistent with preservation of capital and liquidity.
Sub-Adviser: Allmerica Asset Management, Inc. ("AAM") serves as Sub-Adviser to
the Money Market Fund. AAM, an indirect wholly-owned subsidiary of AFC, was
incorporated in 1993 and is located at 440 Lincoln Street, Worcester,
Massachusetts 01653. As
16
- --------------------------
Allmerica Investment Trust
<PAGE>
of December 31, 1997, AAM had approximately $11 billion in assets under
management. AAM serves as investment adviser to First Allmerica's General
Account and to a number of affiliated insurance companies and other affiliated
accounts, as Sub-Adviser to three other series of the Trust and as Adviser for
Allmerica Securities Trust, a diversified, closed-end investment company.
Investment Policies: The Money Market Fund seeks to achieve its objective by
investing in the following high quality money market instruments:
(a) Obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities;
(b) Commercial paper which meets the ratings requirements as set forth in the
paragraph below;
(c) Obligations of banks or savings and loan associations (such as bankers
acceptances and certificates of deposit, including dollar-denominated
obligations of foreign branches of U.S. banks ("Eurodollars") and U.S.
branches of foreign banks if such U.S. branches are subject to state
banking requirements and Federal Reserve reporting requirements) which at
the date of the investment have deposits of at least $1 billion as of
their most recently published financial statements;
(d) Repurchase agreements with respect to obligations described under (a)
above (such obligations subject to repurchase agreement may bear
maturities of more than one year). For more information concerning
repurchase agreements, see "Certain Investment Strategies and Policies;"
and
(e) Cash and cash equivalents.
The Money Market Fund will not purchase any security unless (i) the security
has received the highest or second highest quality rating by at least two NRSROs
or by one NRSRO if only one has rated the security, or (ii) the security is
unrated and in the opinion of AAM, as Sub-Adviser, in accordance with guidelines
adopted by the Trustees, is of a quality comparable to one of the two highest
ratings of an NRSRO. These standards must be satisfied at the time an investment
is made. If the quality of the investment later declines, the Fund may continue
to hold the investment, but the Trustees will evaluate whether the security
continues to present minimal credit risks. See the Appendix for an explanation
of NRSRO ratings.
The Fund will limit its portfolio investments to securities with a remaining
maturity of 397 days or less as of the time of purchase, in accordance with the
Trustees' guidelines. The portfolio will be managed so as to maintain a dollar-
weighted maturity of 90 days or less. In order to maximize the yield on its
assets, the Money Market Fund intends to be as fully invested at all times as is
reasonably practicable. There is always the risk that the issuer of an
instrument may be unable to make payment upon maturity.
The Fund may invest up to 25% of its assets in U.S. dollar denominated foreign
securities (not including its investments in ADRs). The Fund may invest up to
10% of its net assets in securities which are illiquid.
MANAGEMENT FEES AND EXPENSES
Under its Management Agreement with the Trust, the Manager is obligated to
perform certain administrative and management services for the Trust; furnishes
to the Trust all necessary office space, facilities, and equipment; and pays the
compensation, if any, of officers and Trustees who are affiliated with the
Manager. Other than the expenses specifically assumed by the Manager under the
Management Agreement, all expenses incurred in the operation of the Trust are
borne by the Trust, including fees and expenses associated with the registration
and qualification of the Trust's shares under the Securities Act of 1933 (the
"1933 Act"); other fees payable to the SEC; independent accountant, legal and
custodian fees; association membership dues; taxes; interest, insurance
premiums, brokerage commissions, fees and expenses of the Trustees who are not
affiliated with the Manager; expenses for proxies, prospectuses and reports to
shareholders; Fund recordkeeping expenses and other expenses.
For the services to the Funds, the Manager receives fees computed daily at an
annual rate based on the average daily net asset value of each Fund as set forth
below:
<TABLE>
<CAPTION>
SELECT SELECT SELECT CAPITAL SELECT VALUE SELECT
EMERGING AGGRESSIVE APPRECIATION OPPORTUNITY INTERNATIONAL
MARKETS FUND GROWTH FUND FUND FUND EQUITY FUND
------------ ---------- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Manager Fee 1.35%* (1) (1) (2) (1)
</TABLE>
17
--------------------------
Allmerica Investment Trust
<PAGE>
<TABLE>
<CAPTION>
SELECT
SELECT STRATEGIC SELECT GROWTH SELECT MONEY
GROWTH GROWTH AND INCOME INCOME MARKET
FUND FUND FUND FUND FUND
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Manager Fee 0.85% 0.85% (1) (3) (4)
</TABLE>
- -----------------------------------------
*The Manager voluntarily has agreed until further notice to waive its management
fee in the event that expenses of the Select Emerging Markets Fund exceed 2.00%
of the Fund's average daily net assets. The amount of such waiver will be
limited to the net amount of management fees earned by the Manager from the
Fund after subtracting the fees paid by the Manager to SCMI for sub-advisory
services.
(1) The Manager's fees for the Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select International Equity Fund, and Select Growth and
Income Fund, computed daily at an annual rate based on the average daily net
assets of each Fund, are based on the following schedule:
<TABLE>
<CAPTION>
SELECT SELECT GROWTH
SELECT AGGRESSIVE SELECT CAPITAL INTERNATIONAL AND INCOME
ASSETS GROWTH FUND APPRECIATION FUND EQUITY FUND FUND
------ ----------- ----------------- ----------- ----
<S> <C> <C> <C> <C>
First $100 Million...... 1.00% 1.00% 1.00% 0.75%
Next $150 Million....... 0.90% 0.90% 0.90% 0.70%
Next $250 Million....... 0.85% 0.85% 0.85% 0.65%
Over $500 Million....... 0.85% 0.85% 0.85% 0.65%
</TABLE>
(2) The Manager's fee for the Select Value Opportunity Fund, computed daily at
an annual rate based on the average daily net assets of the Fund, is based
on the following schedule:
ASSETS RATE
------ ----
First $100 Million............... 1.00%
Next $150 Million................ 0.85%
Next $250 Million................ 0.80%
Next $250 Million................ 0.75%
Over $750 Million................ 0.70%
The Manager voluntarily has agreed to limit its management fees to an annual
rate of 0.90% of average daily net assets of the Select Value Opportunity
Fund until further notice.
(3) The Manager's fee for the Select Income Fund, computed daily at an annual
rate based on the average daily net assets of the Fund, is based on the
following schedule:
ASSETS RATE
------ ----
First $50 Million................ 0.60%
Next $50 Million................. 0.55%
Over $100 Million................ 0.45%
(4) The Manager's fee for the Money Market Fund, computed daily at an annual
rate based on the average daily net assets of the Fund, is based on the
following schedule:
ASSETS RATE
------ ----
First $50 Million................ 0.35%
Next $200 Million................ 0.25%
Over $250 Million................ 0.20%
The Manager is responsible for the payment of all fees to the Sub-Advisers.
The Manager pays each Sub-Adviser fees computed daily at an annual rate based on
the average daily net asset value of each Fund as set forth below. In certain
Funds, Sub-Adviser fees
18
- --------------------------
Allmerica Investment Trust
<PAGE>
vary according to the level of assets in such Funds, which will reduce the fees
paid by the Manager as Fund assets grow but will not reduce the operating
expenses of such Funds.
<TABLE>
<CAPTION>
SELECT SELECT SELECT CAPITAL SELECT VALUE SELECT
EMERGING AGGRESSIVE APPRECIATION OPPORTUNITY INTERNATIONAL
MARKETS FUND GROWTH FUND FUND FUND EQUITY FUND
------------ ----------- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Sub-Adviser Fee (5) (6) 0.50% (7) (8)
</TABLE>
<TABLE>
<CAPTION>
SELECT
SELECT STRATEGIC SELECT GROWTH SELECT MONEY
GROWTH GROWTH AND INCOME INCOME MARKET
FUND FUND FUND FUND FUND
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sub-Adviser Fee (9) (9) (10) 0.20% 0.10%
</TABLE>
(5) For its services, SCMI will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Emerging Markets Fund,
under the following schedule:
ASSETS RATE
------ ----
First $50 Million....................... 1.00%
Next $50 Million........................ 0.85%
Next $150 Million....................... 0.75%
Over $250 Million....................... 0.60%
(6) For its services, NACM will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Aggressive Growth Fund,
under the following schedule:
ASSETS RATE
------ ----
First $100 Million...................... 0.60%
Next $150 Million....................... 0.55%
Next $250 Million....................... 0.50%
Over $500 Million....................... 0.45%
(7) For its services, CRM will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Value Opportunity Fund,
under the following schedule:
ASSETS RATE
------ ----
First $100 Million...................... 0.60%
Next $150 Million....................... 0.50%
Next $250 Million....................... 0.40%
Next $250 Million....................... 0.375%
Over $750 Million....................... 0.35%
(8) For its services, BIAM will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select International Equity
Fund, under the following schedule:
ASSETS RATE
------ ----
First $50 Million....................... 0.45%
Next $50 Million........................ 0.40%
Over $100 Million....................... 0.30%
19
--------------------------
Allmerica Investment Trust
<PAGE>
(9) For their services, Putnam and Cambiar will receive a fee computed daily at
an annual rate based on the average daily net assets of the Select Growth
Fund and Select Strategic Growth Fund, respectively, under the following
schedule:
ASSETS RATE
------ ----
First $50 Million....................... 0.50%
Next $100 Million....................... 0.45%
Next $100 Million....................... 0.35%
Next $100 Million....................... 0.30%
Over $350 Million....................... 0.25%
(10) For its services, JAL will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Growth and Income Fund,
under the following schedule:
ASSETS RATE
------ ----
First $100 Million...................... 0.40%
Next $200 Million....................... 0.25%
Over $300 Million....................... 0.30%
For the fiscal year ended December 31, 1997, each Fund (except the Select
Emerging Markets Fund and Select Strategic Growth Fund which had not commenced
operations) paid the Manager gross fees before reimbursement at the following
effective rates based on the Fund's average daily net assets:
FUND RATE
---- ----
Select Aggressive Growth Fund............................. 0.95%
Select Capital Appreciation Fund.......................... 0.98%
Select Value Opportunity Fund............................. 0.92%
Select International Equity Fund.......................... 0.97%
Select Growth Fund........................................ 0.85%
Select Growth and Income Fund............................. 0.73%
Select Income Fund........................................ 0.59%
Money Market Fund......................................... 0.27%
The following table shows voluntary expense limitations which the Manager has
declared for each Fund and the operating expenses incurred for the fiscal year
ended December 31, 1997 for each Fund (except the Select Emerging Markets Fund
and Select Strategic Growth Fund which had not commenced operations):
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE DAILY ASSETS
----------------------------------
VOLUNTARY EXPENSE OPERATING
FUND LIMITATIONS EXPENSES+
---- ----------- ---------
<S> <C> <C>
Select Emerging Markets Fund * N/A
Select Aggressive Growth Fund 1.35% 0.99%
Select Capital Appreciation Fund 1.35% 1.13%
Select Value Opportunity Fund 1.25% 0.98%
Select International Equity Fund 1.50% 1.15%
Select Growth Fund 1.20% 0.91%
Select Strategic Growth Fund 1.20% N/A
Select Growth and Income Fund 1.10% 0.77%
Select Income Fund 1.00% 0.72%
Money Market Fund 0.60% 0.35%
</TABLE>
- --------------------------------
+Including reductions such as directed brokerage credits. See "Brokerage
Allocation - Directed Brokerage Program" in the SAI.
*The Manager has agreed until further notice to waive voluntarily its
management fee in the event that expenses of the Select Emerging Markets Fund
exceed 2.00% of the Fund's average daily net assets. The amount of such waiver
will be limited to the net amount of management fees earned by the Manager from
the Fund after subtracting fees paid by the Manager to SCMI for sub-advisory
services.
20
- --------------------------
Allmerica Investment Trust
<PAGE>
The Manager will voluntarily reimburse its fees and any expenses above the
expense limitations. The expense limitations are voluntary and may be removed
any time after the Fund's first fiscal year of operations with notice to
existing shareholders. The Manager reserves the right to recover from a Fund any
fees, within a current fiscal year period, which were reimbursed in that same
year to the extent that total annual expenses did not exceed the applicable
expense limitation. The expenses which are subject to the voluntary expense
limitations include management fees, independent accountant, legal and custodian
fees; recordkeeping expenses; fees and expenses of Trustees who are not
affiliated with the Manager; association membership dues, insurance; expenses
for proxies, prospectuses and reports to shareholders and fees associated with
the registration of Fund shares. Non-recurring and extraordinary expenses
generally are excluded in the determination of expense ratios of the Funds for
purposes of determining any applicable expense waiver or reimbursement.
Quotations of yield or total return for any period when an expense limitation is
in effect will be greater than if the limitation had not been in effect.
FUND MANAGER INFORMATION
The following individuals are responsible primarily for the day-to-day
management of the particular Funds as indicated below:
The following portfolio managers are involved in the investment process
utilized for the SELECT EMERGING MARKETS FUND: ]
John A. Troiano, Chief Executive and Chairman of Emerging Markets Committee,
joined SCMI in 1981 as an investment analyst specializing in engineering and
technology. In 1989, he set up SCMI's Latin American team.
Mark Bridgeman, First Vice President, joined SCMI in 1990 and is a Fund Manager
specializing in the African markets.
Heather F. Crighton, Director, joined SCMI in 1993 as a Fund Manager
specializing in the Asian emerging markets.
The following individuals have served as members of a committee of fund
managers for the SELECT AGGRESSIVE GROWTH FUND since March 1994:
Lawrence S. Speidell is a Partner and Director of Global/Systematic Portfolio
Management and Research at NACM. Prior to joining NACM in 1994, Mr. Speidell
spent ten years with Batterymarch Financial Management. He was also Senior Vice
President and Portfolio Manager at Putnam Management Company from 1971 to 1983.
John J. Kane is a Partner and Senior Portfolio Manager for the U.S. Systematic
portfolios at NACM. He has 28 years of economic/investment experience. Prior to
joining NACM in 1994, Mr. Kane was employed by ARCO Investment Management
Company and General Electric Company.
Mark W. Stuckelman, Portfolio Manager, U.S. Systematic, joined NACM in 1995.
Prior to joining NACM, he was employed for five years with Wells Fargo Bank's
Investment Management Group, Fidelity Management Trust Co., and BARRA, Inc.
The following portfolio managers are involved in the investment process
utilized for the SELECT CAPITAL APPRECIATION FUND:
Brian W.H. Berghuis is a Chartered Financial Analyst who has been with T. Rowe
Price for 13 years. He has 15 years' experience in equity research and
portfolio management. He is head of the investment team for the Fund.
John F. Wakeman has been with T. Rowe Price for 9 years as a research analyst
and portfolio manager. He has 11 years' experience in equity research. He is
part of the investment team for the Fund.
Marc L. Baylin is a Chartered Financial Analyst who has 7 years of investment
experience in equity research. He has been with T. Rowe Price for 5 years as a
Research Analyst and is part of the investment team for the Fund.
The following individuals have served as fund managers for the SELECT VALUE
OPPORTUNITY FUND since January 1, 1997:
Ronald H. McGlynn, Chief Executive Officer and President of Cramer Rosenthal,
has been with Cramer Rosenthal since 1973 and CRM since its founding in 1995.
He has 29 years of investment experience and serves as Co-Chief Investment
Officer and Portfolio Manager.
Jay B. Abramson, who is an Executive Vice President, Director of Research and
Co-Chief Investment Officer, has been with Cramer Rosenthal since 1985 and CRM
since its founding in 1995 and has overall responsibility for investment
research.
21
--------------------------
Allmerica Investment Trust
<PAGE>
Eileen M. Fitzsimons, Vice President and portfolio manager, joined Cramer
Rosenthal in 1996. Previously she was a Managing Director with Dreman Value
Advisors, Inc.
The following portfolio managers are involved in the investment process
utilized for the SELECT INTERNATIONAL EQUITY FUND:
Christopher Reilly, Chief Investment Officer, joined BIAM in 1980 and has had
overall responsibility for asset management since 1985. Previously, he worked
in the United Kingdom in stockbrokering and investment management.
Denis Donovan, Director - Portfolio Management, received an MBA from University
College Dublin. Prior to joining BIAM in 1985, he spent more than 13 years in
the money market and foreign exchange operations of the Central Bank of
Ireland, the Irish equivalent of the U.S. Federal Reserve. He has overall
responsibility for the portfolio management function for all of BIAM's client
base.
Peter Wood joined BIAM in 1985 after spending five years with another leading
investment management firm. He is responsible for portfolio construction.
Jane Neill, Senior Equity Analyst, joined BIAM in 1994. Previously, she was
Chief Investment Officer with another leading Irish investment management firm.
The following individuals have served as members of a committee of fund
managers for the SELECT GROWTH FUND since July 1, 1996:
Carol C. McMullen, Chief Investment Officer, Global Growth Equities, has been
an investment professional with Putnam since 1995. Prior to 1995, Ms. McMullen
was Senior Vice President of Baring Asset Management.
C. Beth Cotner, CFA and Chief Investment Officer, Large Cap Growth Equity, has
been with Putnam since 1995. Prior to 1995, Ms. Cotner was Executive Vice
President at Kemper Financial Services.
Manual Weiss, CFA and Senior Vice President, has been an investment
professional with Putnam since 1987.
The following portfolio managers are involved in the investment process
utilized for the SELECT STRATEGIC GROWTH FUND:
Michael S. Barish, CFA and President, founded Cambiar in 1973 and has 36 years
of investment experience. He is a generalist and is responsible for the
consumer goods and healthcare securities.
Darrel J. Hershey, Senior Vice President, joined Cambiar in 1985 and has 22
years of investment experience. Prior to 1985, Mr. Hershey was employed by
Financial Programs for 10 years as a portfolio manager. He is responsible for
the technology-hardware securities, consumer services and transportation
securities.
Kathleen M. McCarty, CFA, Senior Vice President, joined Cambiar in 1987. Prior
to 1987, Ms. McCarty was employed by Dain Bosworth as the Vice President of
Research. She is responsible for financial services, communication services
and utilities securities.
Michael J. Gardner, CFA and Vice President, joined Cambiar in 1995. Prior to
1995, Mr. Gardner was employed by Simmons & Co. He is responsible for energy
and capital goods securities.
Brian M. Barish, CFA and Vice President, was a Vice President at Lazard Freres
& Co. prior to joining Cambiar in 1997. He is responsible for technology-
software, consumer goods, transportation and international securities.
The following individuals have served as members of a committee of fund
managers of the SELECT GROWTH AND INCOME FUND since September 1994:
John A. Levin, Chairman and Chief Investment Officer, has over 33 years
experience in the investment industry and has been with JAL since 1982. Prior
to 1982, Mr. Levin was a Partner at Steinhardt Partners and a Partner and
Director of Research at Loeb, Rhoades & Co.
Jeffrey A. Kigner, Co-Chairman and Chief Investment Officer, has over 14 years
of investment industry experience and has been with JAL since 1984. Prior to
1984, Mr. Kigner was employed by Cralin & Co.
22
- --------------------------
Allmerica Investment Trust
<PAGE>
The following individuals have served as members of a committee of fund
managers for the SELECT INCOME FUND since the Fund's inception in August 1992:
Edward H. Ladd, Chairman and Managing Director, joined SAW in 1962 and is the
firm's economist. He also assists clients in establishing investment
strategies. Mr. Ladd is a Director of the Federal Reserve Bank of Boston, New
England Electric System, Greylock Management and Harvard Management Corporation
and a member of SAW's Executive Committee.
George W. Noyes, President and Managing Director, joined SAW in 1970 and
directs bond policy formulation and manages institutional bond portfolios at
SAW. Mr. Noyes is Vice Chairman of the ICFA Research Foundation and serves on
SAW's Executive Committee.
Dolores S. Driscoll, Managing Director, joined SAW in 1974 and manages fixed-
income portfolios with specific emphasis on mortgage pass-throughs and original
issue discount bonds. Ms. Driscoll also serves on SAW's Executive Committee.
Richard C. Doll, Manager, joined SAW in 1984 and is a portfolio manager with
research responsibilities in convertible bonds. Prior to joining SAW, Mr. Doll
was a Vice President with the Bank of New England.
Maria D. Furman, Vice President and Director, joined SAW in 1976. She is head
of the tax-exempt area and manages insurance and pension fund accounts. Ms.
Furman currently serves on SAW's Executive Committee.
The following individual has served as fund manager for the MONEY MARKET FUND
since March, 1995:
John C. Donohue, Assistant Vice President of AAM, was a portfolio manager at CS
First Boston Investment Management prior to joining AAM in 1995.
HOW ARE SHARES VALUED?
The net asset value of the shares of each Fund is determined once daily as of
the close of regular trading on the New York Stock Exchange (the "Exchange") on
each day on which the Exchange is open for trading.
Equity securities are valued on the basis of their market value if market
quotations are readily available from the primary market on which the security
is traded. In other cases, they are valued at their fair value as determined in
good faith by the Trustees, although the actual calculations may be performed by
persons acting pursuant to the direction of the Trustees. Debt securities (other
than short-term obligations) normally are valued on the basis of valuations
formulated by a pricing service which utilizes data processing methods to
determine valuations for normal, institutional-size trading units of such
securities. Such methods include the use of market transactions for comparable
securities and various relationships between securities which generally are
recognized by institutional traders. All securities of the Money Market Fund are
valued at amortized cost. Debt obligations in the other Funds having a remaining
maturity of 60 days or less are valued at amortized cost when it is determined
that amortized cost approximates fair value. Short-term obligations of the other
Funds having a remaining maturity of more than 60 days are marked to market
based upon readily available market quotations for such obligations or similar
securities.
Unlike the Money Market Fund which attempts to maintain a stable net asset
value, the net asset value of the other Funds will fluctuate.
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
It is the policy of the Trust to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies, so that the Trust
will not be subject to federal income tax on any net income and any capital
gains to the extent they are distributed or are deemed to have been distributed
to shareholders. Dividends out of net investment income will be declared and
paid quarterly in the case of the Select Growth and Income Fund and Select
Income Fund; annually in the case of the Select Emerging Markets Fund, Select
Aggressive Growth Fund, Select Capital Appreciation Fund, Select Value
Opportunity Fund, Select International Equity Fund, Select Growth Fund and
Select Strategic Growth Fund; and daily in the case of the Money Market Fund.
Distributions of net capital gains for the year, if any, are made annually. All
dividends and capital gain distributions are applied to purchase additional Fund
shares at net asset value as of the payment date. Fund shares are held by the
Separate Accounts and any distributions are reinvested automatically by the
Separate Account. Tax consequences to investors in the Separate Accounts which
are invested in the Trust are described in the prospectuses for such Accounts.
23
--------------------------
Allmerica Investment Trust
<PAGE>
SALE AND REDEMPTION OF SHARES
Shares of the Funds are sold in a continuous offering and currently may be
purchased only by Allmerica Select Separate Accounts. The Separate Accounts are
the funding mechanisms for variable annuity contracts and variable life
insurance policies. The Separate Accounts invest in shares of one or more of the
Funds. Shares of each Fund are sold at their net asset value as next computed
after receipt of the purchase order without the addition of any selling
commission or "sales load." The Distributor, Allmerica Investments, Inc., at its
expense, may provide promotional incentives to dealers that sell variable
annuity contracts for which the Funds serve as investment vehicles.
Shares of the Trust are also currently being issued to Separate Accounts of
Allmerica Financial Life, First Allmerica and subsidiaries of First Allmerica
which issue variable or group annuity policies or variable premium life
insurance policies ("mixed funding"). Although neither Allmerica Financial Life
nor the Trust currently foresees any disadvantage, it is conceivable that in the
future such mixed funding may be disadvantageous for variable or group annuity
policyowners or variable premium life insurance policyowners ("Policyowners").
The Trustees of the Trust intend to monitor events in order to identify any
conflicts that may arise between such Policyowners and to determine what action,
if any, should be taken in response thereto. If the Trustees were to conclude
that separate funds should be established for variable annuity and variable
premium life separate accounts, Allmerica Financial Life would pay the attendant
expenses. The Trust has filed an application with the SEC for an exemptive order
to permit Fund shares to be sold to variable annuity and life insurance separate
accounts of both affiliated and unaffiliated life insurance companies and
qualified pension and retirement plans outside of the separate account context.
If the requested order is granted, any Fund may serve as a funding vehicle for
all types of variable annuity contracts and variable life insurance contracts
offered by various participating insurance companies and for qualified plans;
material irreconcilable conflicts may possibly arise among various contract
owners and plan participants and the Board of Trustees will monitor events in
order to identify the existence of any material irreconcilable conflict and
determine what action, if any, should be taken in response to such conflict.
The Trust redeems shares of each Fund at its net asset value as next computed
after receipt of the request for redemption. The redemption price may be more or
less than the shareholder's cost. No fee is charged by the Trust on redemption.
The variable contracts funded through the Separate Accounts are sold subject to
certain fees and charges, which may include sales and redemption charges as
described in the prospectuses for such Separate Accounts.
Redemption payments will be paid within seven days after receipt of the
written request therefor by the Trust, except that the right of redemption may
be suspended or payments postponed whenever permitted by applicable law and
regulations.
HOW IS PERFORMANCE DETERMINED?
Each Fund's performance may be quoted in advertising. A Fund's performance may
be compared with the performance of other investments or relevant indices. All
performance information is based on historical results and is not intended to
indicate future performance.
For Funds other than the Money Market Fund, "yield" is calculated by dividing
a Fund's annualized net investment income per share during a recent 30-day
period by the net asset value per share on the last day of that period. For the
Money Market Fund, "yield" represents an annualization of the change in value of
an investment (excluding any capital changes) in the Fund for a specific seven-
day period; "effective yield" compounds that yield for a year and is, for that
reason, greater than the Fund's yield.
Total returns are based on the overall dollar or percentage change in value of
a hypothetical investment in a Fund assuming all dividends and capital gain
distributions are reinvested. Cumulative total return reflects the Fund's
performance over a stated period of time. Average annual total return reflects
the hypothetical, annually-compounded return that would have produced the same
cumulative return if the Fund's performance had been constant over the entire
period. Because average annual returns tend to smooth out variations in the
Fund's return, they are not the same as actual year-by-year results.
YIELDS AND TOTAL RETURNS QUOTED FOR THE FUNDS INCLUDE THE EFFECT OF DEDUCTING
THE FUNDS' EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO A
PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE FUNDS CAN BE PURCHASED ONLY
THROUGH A VARIABLE ANNUITY CONTRACT OR VARIABLE LIFE CONTRACT, YOU SHOULD REVIEW
CAREFULLY THE PROSPECTUS FOR THE SEPARATE ACCOUNTS FOR INFORMATION ON RELEVANT
CHARGES AND EXPENSES. INCLUDING THESE CHARGES IN THE QUOTATIONS OF THE FUNDS'
YIELDS AND TOTAL RETURNS WOULD HAVE THE EFFECT OF DECREASING PERFORMANCE.
PERFORMANCE INFORMATION FOR THE FUNDS MUST ALWAYS BE ACCOMPANIED BY, AND BE
REVIEWED WITH, PERFORMANCE INFORMATION FOR THE SEPARATE ACCOUNTS WHICH INVEST IN
THE FUNDS.
24
- --------------------------
Allmerica Investment Trust
<PAGE>
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established as a Massachusetts business trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated October 11, 1984
(the "Trust Declaration"). A copy of the Trust Declaration is on file with the
Secretary of the Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares of beneficial interest
which may be divided into an unlimited number of series of such shares, and
which are divided presently into 14 series of shares, one series underlying each
Fund. Four of the series are not available under Allmerica Select and are not
included in this Prospectus. The Trust's shares are entitled to one vote per
share (with proportional voting for fractional shares). The rights accompanying
Fund shares are vested legally in the Separate Accounts. As a matter of policy,
however, holders of variable annuity contracts funded through the Separate
Accounts have the right to instruct the Separate Accounts as to voting Fund
shares on all matters to be voted on by Fund shareholders. Voting rights of the
participants in the Separate Accounts are set forth more fully in the
prospectuses relating to those Accounts. See "Organization of the Trust" in the
SAI for the definition of a "majority vote" of shareholders.
The Trust is not required to hold annual meetings of shareholders. The
Trustees or shareholders holding at least 10% of the outstanding shares may call
special meetings of shareholders.
FUND RECORDKEEPING AGENT
Investor Services Group calculates net asset value per share and maintains
general accounting records for each Fund. Investor Services Group is entitled to
receive an annual Fund recordkeeping fee based on Fund assets and certain out-
of-pocket expenses.
CUSTODIAN
Bankers Trust Company, 130 Liberty Street, New York, New York 10006, is the
Custodian of the investment securities and other assets of the Trust.
INVESTMENT RESTRICTIONS
The following is a description of certain investment restrictions which are
fundamental and may not be changed with respect to a Fund without shareholder
approval. For a description of certain other investment restrictions, reference
should be made to the SAI.
1. No Fund will concentrate its investments in particular industries,
including debt obligations of supranational entities and foreign governments,
but a Fund may invest up to 25% of the value of its total assets in a particular
industry. The restriction does not apply to investments in obligations issued or
guaranteed by the United States of America, its agencies or instrumentalities,
or to investments by the Money Market Fund in securities issued or guaranteed by
domestic branches of U.S. banks.
2. As to 75% of the value of its total assets (100% for the Money Market
Fund), no Fund will invest more than 5% of the value of its total assets in the
securities of any one issuer (other than securities issued by or guaranteed as
to principal or interest by the United States Government or any agency or
instrumentality thereof) or acquire more than 10% of the voting securities of
any issuer. The remaining 25% of assets (other than for the Money Market Fund)
may be invested in the securities of one or more issuers without regard to such
limitations.
These limitations apply as of the time of purchase. If through market action
the percentage limitations are exceeded, the Fund will not be required to reduce
the amount of its holdings in such investments.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
REPURCHASE AGREEMENTS (APPLICABLE TO ALL FUNDS) AND REVERSE REPURCHASE
AGREEMENTS (APPLICABLE TO THE SELECT CAPITAL APPRECIATION FUND)
Each Fund may invest in repurchase agreements, under which the Fund acquires
ownership of a security (ordinarily U.S. Government securities) but the seller
agrees, at the time of sale to purchase the security at a mutually agreed upon
time and price. Should any seller of a repurchase agreement fail to repurchase
the underlying security, or should any seller become insolvent or involved in a
bankruptcy proceeding, a Fund could incur disposition costs and losses.
Repurchase agreements maturing in more than seven days are subject to the 15%
(10% for the Money Market Fund) limit on illiquid securities.
25
--------------------------
Allmerica Investment Trust
<PAGE>
When the Select Capital Appreciation Fund invests in a reverse repurchase
agreement, it sells a security to another party such as a banker or broker-
dealer in return for cash and agrees to buy the security back at a future date
and price. Reverse repurchase agreement transactions can be considered a form of
borrowing by the Fund. Reverse repurchase agreements may be used to provide cash
to satisfy unusually heavy redemption requests or for other temporary or
emergency purposes without the necessity of selling portfolio securities or to
earn additional income on portfolio securities, such as treasury bills and
notes.
"WHEN-ISSUED" SECURITIES (APPLICABLE TO ALL FUNDS)
Each Fund may purchase securities on a when-issued or delayed delivery basis.
Delivery and payment normally take place 15 to 45 days after the commitment to
purchase. No income accrues on when-issued securities prior to delivery.
Purchase of when-issued securities involves the risk that yields available in
the market when delivery occurs may be higher than those available when the
when-issued order is placed resulting in a decline in the market value of the
security. There is also the risk that under some circumstances the purchase of
when-issued securities may act to leverage the Fund.
LENDING OF SECURITIES (APPLICABLE TO ALL FUNDS)
For the purpose of realizing additional income, the Funds may lend portfolio
securities to broker-dealers or financial institutions amounting to not more
than 33 1/3% of their respective total assets taken at current value. While any
such loan is outstanding, a Fund will continue to receive amounts equal to the
interest or dividends paid by the issuer on the securities, as well as interest
(less any rebates to be paid to the borrower) on the investment of the
collateral or a fee from the borrower. Each Fund will have the right to call
each loan and obtain the securities. Lending portfolio securities involves
certain risks, including possible delays in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will be made in accordance with
guidelines established by the Board of Trustees.
FOREIGN SECURITIES (APPLICABLE TO ALL FUNDS)
Investments in foreign markets involve substantial risks typically not
associated with investing in the U.S. which should be considered carefully by
the investor. Such risks may include political and economic instability,
differing accounting and financial reporting standards, higher commission rates
on foreign portfolio transactions, less readily available public information
regarding issuers, potential adverse changes in tax and exchange control
regulations, and the potentially for restrictions on the flow of international
capital. Foreign securities also involve currency risks. Accordingly, the
relative strength of the U.S. dollar may be an important factor in the
performance of the Fund, depending on the extent of the Fund's foreign
investments. The Money Market Fund may invest only in U.S. dollar denominated
foreign securities. Some foreign securities exchanges may not be as developed or
efficient as those in the United States and securities traded on foreign
securities exchanges generally are subject to greater price volatility. There is
also the possibility of adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation and limitations on the
removal of funds or other assets.
Investments in emerging countries involve exposure to economic structures that
are generally less diverse and mature than in the United States, and to
political systems which may be less stable. In addition, securities of issuers
located in emerging countries may have limited marketability and may be subject
to more abrupt or erratic price fluctuations. The risk also exists that an
emergency situation may arise in one or more emerging markets as a result of
which trading of securities may cease or may be substantially curtailed and
prices for a Fund's portfolio securities in such markets may not be readily
available. Many emerging market countries have experienced high rates of
inflation for many years. Inflation and rapid fluctuations in inflation rates
have had and may continue to have negative effects on the economies and
securities markets of certain countries with emerging markets. Emerging markets
generally are heavily dependent upon international trade and, accordingly, have
been and may continue to be affected adversely by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed by the countries with which they trade. In
certain markets there have been times when settlements of securities
transactions have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions.
The Funds may buy or sell foreign currencies, options on foreign currencies
and foreign currency futures contracts and options thereon and, in addition, the
Select Emerging Markets Fund, Select Capital Appreciation Fund, Select
International Equity Fund and Select Income Fund may invest in foreign currency
forward contracts. Although such instruments may reduce the risk of loss due to
a decline in the value of the currency that is sold, they also limit any
possible gain which might result should the value of the currency increase. Such
instruments will be used primarily to protect a Fund from adverse currency
movements; however, they also involve the risk that anticipated currency
movements will not be accurately predicted, thus adversely affecting a Fund's
total return. See "Options and Futures Transactions."
26
- --------------------------
Allmerica Investment Trust
<PAGE>
The Funds' investments may include ADRs. For many foreign securities, there
are U.S. dollar-denominated ADRs which are traded in the United States on
exchanges or over the counter. ADRs represent the right to receive securities of
foreign issuers deposited in a domestic bank or a correspondent bank. An ADR may
be sponsored by the issuer of the underlying foreign security, or it may be
issued in unsponsored form. The holder of a sponsored ADR is likely to receive
more frequent and extensive financial disclosure concerning the foreign issuer
than the holder of an unsponsored ADR and generally will bear lower transaction
charges. Each Fund may invest in both sponsored and unsponsored ADRs. The Select
International Equity Fund and the Select Capital Appreciation Fund also may
utilize EDRs, which are designed for use in European securities markets, and
also may invest in GDRs.
Obligations in which the Select Income Fund may invest include debt
obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Obligations of supranational
entities may be supported by appropriated but unpaid commitments of their member
countries, and there is no assurance that these commitments will be undertaken
or met in the future. The Fund may not invest more than 25% of its assets in
debt obligations of supranational entities.
Certain state insurance regulations may impose additional restrictions on a
Fund's holdings of foreign securities.
OPTIONS AND FUTURES TRANSACTIONS (APPLICABLE TO EACH FUND EXCEPT THE MONEY
MARKET FUND), FORWARD CONTRACTS (APPLICABLE TO THE SELECT EMERGING MARKETS FUND,
SELECT CAPITAL APPRECIATION FUND, SELECT INTERNATIONAL EQUITY FUND AND SELECT
INCOME FUND) AND SWAPS (APPLICABLE TO THE SELECT CAPITAL APPRECIATION FUND)
Through the writing and purchase of put and call options on its securities,
financial indices and foreign currencies, and the purchase and sale of futures
contracts and related options with respect to securities, financial indices and
(in the case of the Select Emerging Markets Fund, Select Capital Appreciation
Fund, Select International Equity Fund and Select Income Fund) foreign
currencies in which it may invest, each Fund except the Money Market Fund may at
times seek to hedge against fluctuations in net asset value, or to a limited
extent, to engage in non-hedging strategies. A Fund may not purchase or sell a
futures contract for non-hedging purposes if immediately thereafter the sum of
the amount of margin deposits and amount of variation margins paid from time to
time on a Fund's existing futures and related options positions and premiums
paid for related options would exceed 5% of the market value of the Fund's total
assets. The Select Emerging Markets Fund, Select Capital Appreciation Fund,
Select International Equity Fund and Select Income Fund may invest without
limitation in foreign currency options. Each Fund's ability to engage in options
and futures strategies will depend on the availability of liquid markets in such
instruments. It is impossible to predict the amount of trading interest that may
exist in various types of options or futures contracts. Therefore, there is no
assurance that a Fund will be able to utilize these instruments effectively for
the purposes stated above.
Additionally, the Select Emerging Markets Fund, Select Capital Appreciation
Fund, Select International Equity Fund and Select Income Fund may invest in
forward currency contracts with the stated contract value of up to the value of
the Fund's assets and the Select Capital Appreciation Fund in swaps which may
expose these Funds to additional risks and transaction costs.
Risks inherent in the use of futures, options, forward contracts and swaps
("derivative instruments") include (1) the risk that movements in interest
rates, securities prices and currency markets will not be accurately anticipated
and a Fund's total return could be adversely affected as a result; (2) imperfect
correlation, or even no correlation, between the price of derivative instruments
and movements in the prices of the securities, interest rates or currencies
being hedged; (3) the fact that skills and techniques needed to use these
strategies are different from those needed to select portfolio securities; (4)
the lack of assurance that a liquid secondary market will exist for any
particular instrument at any time and, as a result, contractual positions cannot
be closed out easily; (5) the possible loss of principal under certain
conditions; (6) the possible inability of a Fund to purchase or sell a portfolio
security at a time when it would otherwise be favorable to do so due to the need
for the Fund to maintain "cover" or set aside securities in connection with
hedging techniques; and (7) the risk of a loss if the counterparty to the
transaction does not perform as promised. These techniques may increase
volatility of a Fund and may involve a small investment of cash relative to the
magnitude of the risk assumed.
The Fund will purchase futures and options only on exchanges or boards of
trade when there appears to be an active secondary market, but there can be no
assurance that a liquid secondary market will exist for any future or option at
any particular time.
In connection with transactions in futures and related options, the Funds will
be required to deposit as "initial margin" an amount of cash and/or securities.
Thereafter, subsequent payments are made to and from the broker to reflect
changes in the value of the future contract.
A more detailed explanation of futures, options and other derivative
instruments, and the risks associated with them, is included in the SAI.
27
--------------------------
Allmerica Investment Trust
<PAGE>
RESTRICTED SECURITIES (APPLICABLE TO ALL FUNDS)
The Funds also may purchase fixed-income securities that are not registered
under the 1933 Act ("restricted securities"), but can be offered and sold to
"qualified institutional buyers" under Rule 144A of the 1933 Act. However, each
Fund will not invest more than 15% (10% for the Money Market Fund) of its net
assets in restricted securities (and securities deemed to be illiquid) unless
the Board of Trustees determines, based upon a continuing review of the trading
markets for the specific restricted security, that such restricted securities
are liquid. The Board of Trustees has adopted guidelines and delegated to the
Manager the daily function of determining and monitoring liquidity of restricted
securities. The Board, however, will retain sufficient oversight and be
responsible ultimately for the determinations. Since it is not possible to
predict with assurance exactly how this market for restricted securities sold
and offered under Rule 144A will develop, the Board will monitor carefully a
Fund's investments in securities, focusing on such important factors, among
others, as valuation, liquidity and availability of information. This investment
practice could have the effect of increasing the level of illiquidity in a Fund
to the extent that qualified institutional buyers become for a time uninterested
in purchasing these restricted securities. As a result, a Fund might not be able
to sell these securities when its Sub-Adviser wishes to do so, or might have to
sell them at less than fair value. In addition, market quotations are less
readily available. Therefore, judgment at times may play a greater role in
valuing these securities than in the case of unrestricted securities.
INVESTMENT IN MONEY MARKET SECURITIES (APPLICABLE TO ALL FUNDS)
Any Fund may hold at least a portion of its assets in cash equivalents or
money market instruments. There is always the risk that the issuer of a money
market instrument may be unable to make payment upon maturity.
The Money Market Fund may hold uninvested cash reserves pending investment
during temporary, defensive periods or if, in the opinion of the Sub-Adviser,
suitable securities are not available for investment. Securities in which the
Money Market Fund may invest may not earn as high a level of current income as
long term, lower quality securities which, however, generally have less
liquidity, greater market risk and more fluctuation in market value.
HIGH YIELD SECURITIES (APPLICABLE TO THE SELECT EMERGING MARKETS FUND, SELECT
CAPITAL APPRECIATION FUND, SELECT GROWTH FUND, SELECT GROWTH AND INCOME FUND AND
SELECT INCOME FUND)
Corporate debt securities purchased by the Select Emerging Markets Fund,
Select Capital Appreciation Fund, Select Growth Fund, Select Growth and Income
Fund and Select Income Fund will be rated at the time of purchase B or better by
Moody's or S&P, or equivalently rated by another NRSRO, or unrated but believed
by the Sub-Adviser to be of comparable quality under the guidelines established
for the Funds. The Select Growth Fund and the Select Growth and Income Fund may
not invest more than 15% of their assets, the Select Income Fund may not invest
more than 25% of its assets and the Select Emerging Markets Fund and Select
Capital Appreciation Fund may not invest more than 35% of their assets at the
time of investment in securities rated below Baa by Moody's or BBB by S&P, or
equivalently rated by another NRSRO, or unrated but believed by the Sub-Adviser
to be of comparable quality. Securities rated B by Moody's or S&P (or
equivalently by another NRSRO) are below investment grade and are considered, on
balance, to be predominantly speculative with respect to capacity to pay
interest and repay principal and will generally involve more credit risk than
securities in the higher rating categories.
Periods of economic uncertainty and changes can be expected to result in
increased volatility of market prices of lower-rated securities, commonly known
as "high yield" securities or "junk bonds," and of the asset value of the Select
Emerging Markets Fund, Select Capital Appreciation Fund, Select Growth Fund,
Select Growth and Income Fund and Select Income Fund. Many issuers of high yield
corporate debt securities are leveraged substantially at times, which may impair
their ability to meet debt service obligations. Also, during an economic
downturn or substantial period of rising interest rates, highly leveraged
issuers may experience financial stress.
The lack of a liquid secondary market in certain lower-rated securities may
have an adverse impact on their market price and the ability of a Fund to
dispose of particular issues when necessary to meet its liquidity needs or in
response to a specific economic event such as a deterioration in the credit-
worthiness of the issuer. In addition, a less liquid market may interfere with
the ability of a Fund to value accurately high yield securities and,
consequently, value a Fund's assets. Furthermore, adverse publicity and investor
perceptions may decrease the value and liquidity of high yield securities. It is
reasonable to expect any recession to disrupt severely the market for high yield
fixed-income securities, have an adverse impact on the value of such securities
and adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon. The market prices of lower-rated securities
are generally less sensitive to interest rate changes than higher-rated
investments, but more sensitive to adverse economic or political changes or
individual developments specific to the issuer. Periods of economic or political
uncertainty and change can be expected to result in volatility of price of these
securities.
28
- --------------------------
Allmerica Investment Trust
<PAGE>
The Funds also may invest in unrated debt securities of foreign and domestic
issuers. Unrated debt, while not necessarily of lower quality than rated
securities, may not have as broad a market. Sovereign debt of foreign
governments generally is rated by country. Because these ratings do not take
into account individual factors relevant to each issue and may not be updated
regularly, the Sub-Adviser may treat such securities as unrated debt. Unrated
debt securities and securities with different ratings from more than one agency
will be included in the 15%, 25% and 35% limits of the Funds as stated above,
unless such Fund's Sub-Adviser deems such securities to be the equivalent of
investment grade securities. See the Appendix for a description of the bond
ratings.
ASSET-BACKED SECURITIES (APPLICABLE TO THE SELECT GROWTH AND INCOME FUND, SELECT
INCOME FUND AND MONEY MARKET FUND)
The Funds may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, frequently a pool of assets similar to one
another. Assets generating such payments include instruments such as motor
vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed for certain
amounts and time periods by a letter of credit issued by a financial institution
unaffiliated with the issuer of the securities. The estimated life of an asset-
backed security varies with the prepayment experience of the underlying debt
instruments. The rate of such prepayments, and hence the life of the asset-
backed security, will be primarily a function of current market rates, although
other economic and demographic factors will be involved. Under certain interest
rate and prepayment rate scenarios, the Funds may fail to recoup fully their
investment in asset-backed securities. A Fund will not invest more than 20% of
its total assets in asset-backed securities.
MORTGAGE-BACKED SECURITIES (APPLICABLE TO THE SELECT INCOME FUND)
The Fund may invest in mortgage-backed securities which are debt obligations
secured by real estate loans and pools of loans on single family homes, multi-
family homes, mobile homes and, in some cases, commercial properties. The Fund
may acquire securities representing an interest in a pool of mortgage loans that
are issued or guaranteed by a U.S. government agency such as Ginnie Mae, Fannie
Mae and Freddie Mac.
Mortgage-backed securities are in most cases "pass-through" instruments
through which the holder receives a share of all interest and principal payments
from the mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yields of a particular issue of pass-
through certificates. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When the mortgage obligations are prepaid, the Fund reinvests the prepaid
amounts in securities, the yield of which reflects interest rates prevailing at
the time. Moreover, prepayment of mortgages that underlie securities purchased
at a premium could result in losses.
The Fund also may invest in multiple class securities issued by U.S.
government agencies and instrumentalities such as Fannie Mae, Freddie Mac and
Ginnie Mae, including guaranteed collateralized mortgage obligations ("CMOs")
and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates, when consistent with the Fund's investment
objective, policies and limitations. A CMO is a type of bond secured by an
underlying pool of mortgages or mortgage pass-through certificates that are
structured to direct payment on underlying collateral to different series or
classes of obligations. A REMIC is a CMO that qualifies for special tax
treatment under the Internal Revenue Code and invests in certain mortgages
principally secured by interests in real property and other permitted
investments.
CMOs and guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by Fannie Mae, Freddie Mac and Ginnie Mae are types of multiple pass-
through securities. Investors may purchase beneficial interests in REMICs, which
are known as "regular" interests or "residual" interests. The Funds currently do
not intend to purchase residual interests in REMICs. The REMIC Certificates
represent beneficial ownership interests in a REMIC trust, generally consisting
of mortgage loans or Fannie Mae, Freddie Mac or Ginnie Mae guaranteed mortgage
pass-through certificates. The obligations of Fannie Mae or Freddie Mac under
their respective guaranty of the REMIC Certificates are obligations solely of
Fannie Mae or Freddie Mac, respectively.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are available otherwise.
For Freddie Mac REMIC Certificates, Freddie Mac guarantees the timely payment
of interest and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified residential mortgages or
participations therein purchased by Freddie Mac and placed in a PC pool. With
respect to principal payments on PCs, Freddie Mac generally guarantees ultimate
collection of all principal of the related mortgage loans without offset or
deduction. Freddie Mac also guarantees timely payment of principal on certain
PCs referred to as "Gold PCs."
Ginnie Mae REMIC Certificates guarantee the full and timely payment of
interest and principal on each class of securities (in accordance with the terms
of those classes). This Ginnie Mae guarantee is backed by the full faith and
credit of the United States.
29
--------------------------
Allmerica Investment Trust
<PAGE>
REMIC Certificates issued by Fannie Mae, Freddie Mac and Ginnie Mae are
treated as U.S. government securities for purposes of investment policies. There
can be no assurance that the U.S. Government will continue to provide financial
support to Fannie Mae, Freddie Mac or Ginnie Mae in the future.
STRIPPED MORTGAGE-BACKED SECURITIES (APPLICABLE TO THE SELECT INCOME FUND)
The Fund may invest in stripped mortgage-backed securities ("SMBS"). SMBS are
derivative multiclass mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
SMBS usually are structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. One type of SMBS will have one class receiving some of the interest and
most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In some cases,
one class will receive all of the interest (the interest-only or "IO" class)
while the other class will receive all of the principal (the principal-only or
"PO" class). The yield to maturity on an IO class is extremely sensitive to the
rate of principal payments (including prepayment on the related underlying
mortgage assets), and a rapid rate of principal payments may have a material,
adverse effect on a portfolio yield to maturity from these securities. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Fund may fail to recoup fully their initial investment in these
securities even if the security is in one of the highest rating categories.
Certain SMBS may be deemed "illiquid" and subject to the Fund's limitations on
investment in illiquid securities. The market value of the PO class generally is
unusually volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest from mortgage assets are
generally higher than prevailing market yields in other mortgage-backed
securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be recouped fully. The Sub-
Adviser will seek to manage these risks (and potential benefits) by investing in
a variety of such securities and by using certain hedging techniques.
HEDGING TECHNIQUES AND INVESTMENT PRACTICES (APPLICABLE TO THE SELECT EMERGING
MARKETS FUND, SELECT CAPITAL APPRECIATION FUND AND SELECT INTERNATIONAL EQUITY
FUND)
The Select Emerging Markets Fund, Select Capital Appreciation Fund and Select
International Equity Fund may employ certain strategies in order to manage
exchange rate risks. For example, the Funds may hedge some or all of their
investments denominated in a foreign currency against a decline in the value of
that currency. The Funds may enter into contracts to sell that foreign currency
for U.S. dollars (not exceeding the value of a Fund's assets denominated in or
exposed to that currency) or by participating in options on futures contracts
with respect to such currency ("position hedge"). The Funds also could hedge
that position by selling a second currency, that is expected to perform
similarly to the currency in which portfolio investments are denominated for
U.S. dollars ("proxy hedge"). The Funds also may enter into a forward contract
to sell the currency in which the security is denominated for a second currency
that is expected to perform better relative to the U.S. dollar if their Sub-
Adviser believes there is a reasonable degree of correlation between movements
in the two currencies ("cross-hedge"). As an operational policy, the Funds will
not commit more than 10% of their assets to the consummation of cross-hedge
contracts and either will cover currency hedging transactions with liquid
portfolio securities denominated in or whose value is tied to the applicable
currency or segregate liquid assets in the amount of such commitments. In
addition, when the Funds anticipate repurchasing securities denominated in a
particular currency, the Funds may enter into a forward contract to purchase
such currency in exchange for the dollar or another currency ("anticipatory
hedge").
These strategies minimize the effect of currency appreciation as well as
depreciation, but do not protect against a decline in the underlying value of
the hedged security. In addition, such strategies may reduce or eliminate the
opportunity to profit from increases in the value of the original currency and
may have an adverse impact on a Fund's performance if their Sub-Adviser's
projection of future exchange rates is inaccurate.
STAND-BY COMMITMENTS (APPLICABLE TO THE SELECT INCOME FUND AND MONEY MARKET
FUND)
Under a stand-by commitment, a dealer agrees to purchase from the Fund, at the
Fund's option, specified securities at a specified price. Stand-by commitments
are exercisable by the Fund at any time before the maturity of the underlying
security, and may be sold, transferred or assigned by the Fund only with respect
to the underlying instruments.
Although stand-by commitments are often available without the payment of any
direct or indirect consideration, if necessary or advisable, the Fund may pay
for a stand-by commitment either separately in cash or by paying a higher price
for securities which are acquired subject to the commitment.
30
- --------------------------
Allmerica Investment Trust
<PAGE>
Where the Fund pays any consideration directly or indirectly for a stand-by
commitment, its cost will be reflected as unrealized depreciation for the period
during which the commitment is held by the Fund.
The Fund will enter into stand-by commitments only with banks and broker-
dealers which present minimal credit risks. In evaluating the creditworthiness
of the issuer of a stand-by commitment, the Sub-Adviser will review periodically
the issuer's assets, liabilities, contingent claims and other relevant financial
information.
The Fund will acquire stand-by commitments solely to facilitate liquidity and
does not intend to exercise its rights thereunder for trading purposes. Stand-
by commitments will be valued at zero in determining the Fund's net asset value.
31
--------------------------
Allmerica Investment Trust
<PAGE>
APPENDIX
Descriptions of Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Ratings Service, a division of McGraw-Hill Companies, Inc. ("S&P")
commercial paper and bond ratings:
COMMERCIAL PAPER RATINGS
MOODY'S EMPLOYS THREE DESIGNATIONS, ALL JUDGED TO BE INVESTMENT GRADE, TO
INDICATE THE RELATIVE REPAYMENT CAPACITY OF RATED ISSUERS. THE TWO HIGHEST
DESIGNATIONS ARE AS FOLLOWS:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity normally will be evidenced by the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
- Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This normally
will be evidenced by many of the characteristics cited above, but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be subject more
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
S&P COMMERCIAL PAPER RATINGS ARE GRADED INTO SEVERAL CATEGORIES, RANGING FROM
"A-1" FOR THE HIGHEST QUALITY OBLIGATIONS TO "D" FOR THE LOWEST. THE TWO HIGHEST
RATING CATEGORIES ARE DESCRIBED AS FOLLOWS:
A-1 - This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MUNICIPAL OBLIGATIONS
Moody's ratings for state and municipal and other short-term obligations will
be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in the short-term borrowing, while various factors of the first
importance in long-term borrowing risk are of lesser importance in the long run.
Symbols used will be as follows:
MIG-1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG-2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
A short-term rating also may be assigned on an issue having a demand feature.
Such ratings will be designated as VMIG to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event that demand is not met.
VMIG-1 and VMIG-2 ratings carry the same definitions as MIG-1 and MIG-2,
respectively.
32
- --------------------------
Allmerica Investment Trust
<PAGE>
DESCRIPTION OF MOODY'S BOND RATINGS
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present that suggest a susceptibility to impairment some time in the
future.
Baa - Bonds that are rated Baa are considered to be medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.
Those bonds within the Aa, A, Baa, Ba and B categories that Moody's believes
possess the strongest credit attributes within those categories are designated
by the symbols Aa1, A1, Baa1, Ba1, and B1.
DESCRIPTION OF S&P'S DEBT RATINGS
AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC, C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and
C the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
Plus (+) or (-): The ratings from AA to CCC may be modified by the addition of
a plus or minus sign to show relative standing within the major categories.
33
--------------------------
Allmerica Investment Trust
<PAGE>
ALLMERICA INVESTMENT TRUST
440 Lincoln Street
Worcester, Massachusetts 01653
(508) 855-1000
Allmerica Investment Trust (the "Trust") is a professionally managed, open-end
investment company designed to provide the underlying investment vehicles for
insurance-related accounts. The seven separate portfolios of the Trust
(collectively, the "Funds" and individually, the "Fund") currently offered by
this Prospectus are as follows:
SELECT AGGRESSIVE GROWTH FUND
SELECT INTERNATIONAL EQUITY FUND
GROWTH FUND
EQUITY INDEX FUND
INVESTMENT GRADE INCOME FUND
GOVERNMENT BOND FUND
MONEY MARKET FUND
Currently, shares of each Fund may be purchased only by the separate accounts
("Separate Accounts") established by First Allmerica Financial Life Insurance
Company ("First Allmerica") or Allmerica Financial Life Insurance and Annuity
Company ("Allmerica Financial Life"), an indirect, wholly-owned subsidiary of
First Allmerica, for the purpose of funding variable annuity or variable life
insurance policies. A particular Fund may not be available under the variable
annuity or variable life insurance policy which you have chosen. The Prospectus
of the specific insurance product you have chosen will indicate which Funds are
available and should be read in conjunction with this Prospectus. Inclusion in
this Prospectus of a Fund which is not available under your policy is not to be
considered a solicitation.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor ought to know before investing. Certain additional
information is contained in the Statement of Additional Information dated May 1,
1998 (the "SAI"), which has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference and is available upon
request without charge from the Trust, 440 Lincoln Street, Worcester, MA 01653,
(508) 855-1000.
Investment in the Funds is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Money Market Fund will be able to
maintain a stable net asset value of $1.00 per share.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY
INSTITUTION. SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC") OR ANY OTHER GOVERNMENTAL AGENCY, AND ARE SUBJECT TO VARIOUS RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DATED MAY 1, 1998
---------------------------
Allmerica Investment Trust
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS................................................. 3
HOW ARE THE FUNDS MANAGED?........................................... 8
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?..................... 9
Select Aggressive Growth Fund...................................... 9
Select International Equity Fund................................... 10
Growth Fund........................................................ 10
Equity Index Fund.................................................. 11
Investment Grade Income Fund....................................... 12
Government Bond Fund............................................... 13
Money Market Fund.................................................. 14
MANAGEMENT FEES AND EXPENSES......................................... 14
FUND MANAGER INFORMATION............................................. 17
HOW ARE SHARES VALUED?............................................... 18
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS.............................. 19
SALE AND REDEMPTION OF SHARES........................................ 19
HOW IS PERFORMANCE DETERMINED?....................................... 19
ORGANIZATION AND CAPITALIZATION OF THE TRUST......................... 20
INVESTMENT RESTRICTIONS.............................................. 20
CERTAIN INVESTMENT STRATEGIES AND POLICIES........................... 21
APPENDIX............................................................. 26
</TABLE>
2
- ---------------------------
Allmerica Investment Trust
<PAGE>
FINANCIAL HIGHLIGHTS
The following Financial Highlights have been audited by Price Waterhouse LLP,
the independent accountants of the Trust. This information should be read in
conjunction with the financial statements and notes thereto which appear in the
Policyowner's annual report for the year ended December 31, 1997 ("Annual
Report"), and which are incorporated by reference in the Trust's SAI. Further
information about the performance of the Funds is contained in the Annual Report
which may be obtained without charge from the Trust, 440 Lincoln Street,
Worcester, MA 01653, (508) 855-1000.
3
---------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED
VALUE NET GAIN (LOSS) TOTAL FROM
YEAR ENDED BEGINNING INVESTMENT ON INVESTMENT
DECEMBER 31, OF YEAR INCOME/(2)/ INVESTMENTS OPERATIONS
- ------------ ------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Select Aggressive
Growth Fund/(1)/
1997 $ 2.037 $(0.009) $ 0.387 $ 0.378
1996 1.848 (0.009) 0.351 0.342
1995 1.397 (0.001) 0.452 0.451
1994 1.431 (0.002) (0.032) (0.034)
1993 1.197 0.001 0.234 0.235
1992 1.000 0.001 0.197 0.198
Select International
Equity Fund/(1)/
1997 1.356 0.015 0.049 0.064
1996 1.136 0.011 0.238 0.249
1995 0.963 0.013 0.176 0.189
1994 1.000 0.003 (0.038) (0.035)
Growth Fund/(1)/
1997 2.333 0.039 0.540 0.579
1996 2.176 0.047 0.386 0.433
1995 1.814 0.049 0.539 0.588
1994 1.939 0.043 (0.041) 0.002
1993 2.034 0.039 0.095 0.134
1992 1.976 0.034 0.105 0.139
1991 1.471 0.038 0.548 0.586
1990 1.558 0.041 (0.047) (0.006)
1989 1.308 0.043 0.289 0.332
1988 1.147 0.037 0.200 0.237
Equity Index Fund/(1)/
1997 2.165 0.034 0.664 0.698
1996 1.827 0.035 0.370 0.405
1995 1.468 0.035 0.474 0.509
1994 1.505 0.033 (0.018) 0.015
1993 1.409 0.032 0.102 0.134
1992 1.354 0.030 0.066 0.096
1991 1.080 0.032 0.279 0.311
1990 1.000 0.009 0.080 0.089
<CAPTION>
LESS DISTRIBUTIONS
-----------------------------------------------------------
NET
DISTRIBUTIONS INCREASE
DIVIDENDS FROM NET (DECREASE)
FROM NET REALIZED DISTRIBUTIONS IN
YEAR ENDED INVESTMENT CAPITAL IN RETURN OF TOTAL NET ASSET
DECEMBER 31, INCOME GAINS EXCESS CAPITAL DISTRIBUTIONS VALUE
- ------------ ------ ----- ------ ------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Select Aggressive
Growth Fund/(1)/
1997 $ -- $(0.182) $ (0.008)/(3)/ $ -- $(0.190) $ 0.188
1996 -- (0.153) -- -- (0.153) 0.189
1995 -- -- -- -- -- 0.451
1994 -- -- -- -- -- (0.034)
1993 (0.001) -- -- -- (0.001) 0.234
1992 (0.001) -- -- -- (0.001) 0.197
Select International
Equity Fund/(1)/
1997 (0.019) (0.046) (0.014)/(4)/ -- (0.079) (0.015)
1996 (0.012) (0.003) (0.014)/(4)/ -- (0.029) 0.220
1995 (0.011) (0.005) -- -- (0.016) 0.173
1994 (0.001) (0.001) -- -- (0.002) (0.037)
Growth Fund/(1)/
1997 (0.038) (0.458) -- -- (0.496) 0.083
1996 (0.048) (0.228) -- -- (0.276) 0.157
1995 (0.049) (0.177) -- -- (0.226) 0.362
1994 (0.043) (0.084) -- -- (0.127) (0.125)
1993 (0.039) (0.180) -- (0.010) (0.229) (0.095)
1992 (0.034) (0.047) -- -- (0.081) 0.058
1991 (0.039) (0.042) -- -- (0.081) 0.505
1990 (0.041) (0.040) -- -- (0.081) (0.087)
1989 (0.046) (0.036) -- -- (0.082) 0.250
1988 (0.037) (0.039) -- -- (0.076) 0.161
Equity Index Fund/(1)/
1997 (0.033) (0.077) -- -- (0.110) 0.588
1996 (0.035) (0.032) -- -- (0.067) 0.338
1995 (0.035) (0.047) (0.002)/(3)/ (0.066) (0.150) 0.359
1994 (0.033) (0.019) -- -- (0.052) (0.037)
1993 (0.031) (0.007) -- -- (0.038) 0.096
1992 (0.031) (0.010) -- -- (0.041) 0.055
1991 (0.032) (0.005) -- -- (0.037) 0.274
1990 (0.009) -- -- -- (0.009) 0.080
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
(A) Including reimbursements, waivers, and reductions.
(B) Excluding reductions. Certain Portfolios have entered into varying
arrangements with brokers who reduced a portion of the Portfolio's expenses.
(C) Excluding reimbursements and reductions.
(D) For fiscal years beginning on or after September 1, 1995, a Portfolio is
required to disclose its average commission rate per share for trades for
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
(1) The Select Aggressive Growth Fund commenced operations on August 21, 1992.
The Select International Equity Fund commenced operations on May 2, 1994.
The Growth Fund changed Investment Sub-Adviser on April 1, 1988. The Equity
Index Fund commenced operations on September 28, 1990.
(2) Net investment income per share before reimbursement of fees by the
investment adviser or reductions were $(0.010) in 1997, $0.000 in 1993 and
$(0.001) in 1992 for Select Aggressive Growth Fund ; $0.015 in 1997, $0.011
in 1996 and $0.002 in 1994 for Select International Equity Fund; $0.038 in
1997, $0.046 in 1996 and $0.0.38 in 1993 for Growth Fund; and $0.031 in
1993, $0.028 in 1992 and $0.031 in 1991 for Equity Index Fund.
(3) Distributions in excess of net realized capital gains.
(4) Distributions in excess of net investment income.
(5) Unaudited.
4
- ---------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
---------------------------------------------------------------------
NET ASSET NET ASSETS
VALUE END OF NET PORTFOLIO AVERAGE
END OF TOTAL YEAR INVESTMENT OPERATING EXPENSES MANAGEMENT FEES TURNOVER COMMISSIONS
YEAR RETURN (000'S) INCOME (A) (B) (C) GROSS NET RATE RATE/(D)/
---- ------ ----- ---------- --- --- --- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2.225 18.71% $604,123 (0.45)% 0.99% 1.04% 1.04% 0.95% 0.95% 95% $0.0617
2.037 18.55% 407,442 (0.53)% 1.08% 1.08% 1.08% 1.00% 1.00% 113% 0.0597
1.848 32.28% 254,872 (0.07)% 1.09% -- 1.09% 1.00% 1.00% 104% --
1.397 (2.31)% 136,573 (0.21)% 1.16% -- 1.16% 1.00% 1.00% 100% --
1.431 19.51% 66,251 0.10% 1.19% -- 1.23% 1.00% 0.96% 76% --
1.197 19.85%** 9,270 0.34%* 1.35%* -- 1.88%* N/A N/A 33% --
1.341 4.65% 397,915 1.17% 1.15% 1.17% 1.17% 0.97% 0.97% 20% 0.0229
1.356 21.94% 246,877 1.22% 1.20% 1.23% 1.23% 1.00% 1.00% 18% 0.0248
1.136 19.63% 104,312 1.68% 1.24% -- 1.24% 1.00% 1.00% 24% --
0.963 (3.49)%** 40,498 0.87%* 1.50%* -- 1.78%* 1.00%* 0.72%* 19% --
2.416 25.14% 728,679 1.48% 0.47% 0.49% 0.49% 0.43% 0.43% 79% 0.0575
2.333 20.19% 556,751 2.04% 0.48% 0.51% 0.51% 0.44% 0.44% 72% 0.0576
2.176 32.80% 444,871 2.34% 0.54% -- 0.54% 0.46% 0.46% 64% --
1.814 0.16% 335,714 2.25% 0.56% -- 0.56% 0.48% 0.48% 46% --
1.939 6.66% 338,545 1.92% 0.54% -- 0.55% 0.49% 0.48% 42% --
2.034 7.11% 270,828 1.85% 0.58% -- 0.58% N/A N/A 19% --
1.976 40.44% 182,965 2.26% 0.57% -- 0.57% N/A N/A 24% --
1.471 (0.30)% 97,179 2.82% 0.60% -- 0.60% N/A N/A 39% --
1.558 25.64% 76,783 2.98% 0.71% -- 0.71% N/A N/A 33% --
1.308 20.80%/(5)/ 52,439 2.93% 0.75% -- 0.75% N/A N/A 99% --
2.753 32.41% 297,191 1.38% 0.44% 0.44% 0.44% 0.31% 0.31% 9% 0.0385
2.165 22.30% 151,130 1.79% 0.46% 0.46% 0.46% 0.32% 0.32% 12% 0.0395
1.827 36.18% 90,889 1.96% 0.55% -- 0.55% 0.34% 0.34% 8% --
1.468 1.06% 52,246 2.25% 0.57% -- 0.57% 0.35% 0.35% 7% --
1.505 9.53% 42,842 2.28% 0.57% -- 0.63% 0.35% 0.29% 4% --
1.409 7.25% 22,393 2.47% 0.57% -- 0.75% N/A N/A 6% --
1.354 29.16% 9,700 2.73% 0.55% -- 0.64% N/A N/A 6% --
1.080 8.90%** 5,469 3.39%* 0.38%* -- 0.38%* N/A N/A 0.24% --
</TABLE>
5
---------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED
VALUE NET GAIN (LOSS) TOTAL FROM
YEAR ENDED BEGINNING INVESTMENT ON INVESTMENT
DECEMBER 31, OF YEAR INCOME/(4)/ INVESTMENTS OPERATIONS
- ------------ ------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Investment Grade
Income Fund/(1)/
1997 $1.084 $0.071 $ 0.028 $ 0.099
1996 1.117 0.070 (0.033) 0.037
1995 1.012 0.071 0.106 0.177
1994 1.111 0.066 (0.099) (0.033)
1993 1.074 0.065 0.049 0.114
1992 1.085 0.075 0.013 0.088
1991 1.004 0.080 0.081 0.161
1990 1.011 0.083 (0.006) 0.077
1989 0.968 0.082 0.044 0.126
1988 0.974 0.084 (0.006) 0.078
Government
Bond Fund/(1)/
1997 1.036 0.061 0.011 0.072
1996 1.062 0.062 (0.026) 0.036
1995 0.997 0.062 0.066 0.128
1994 1.070 0.063 (0.073) (0.010)
1993 1.051 0.055 0.024 0.079
1992 1.047 0.057 0.009 0.066
1991 1.000 0.022 0.051 0.073
Money Market
Fund
1997 1.000 0.053 -- 0.053
1996 1.000 0.052 -- 0.052
1995 1.000 0.057 -- 0.057
1994 1.000 0.039 -- 0.039
1993 1.000 0.030 -- 0.030
1992 1.000 0.037 -- 0.037
1991 1.000 0.060 -- 0.060
1990 1.000 0.078 -- 0.078
1989 1.000 0.086 -- 0.086
1988 1.000 0.071 -- 0.071
<CAPTION>
LESS DISTRIBUTIONS
-------------------------------------------------------------
NET
DISTRIBUTIONS INCREASE
DIVIDENDS FROM NET (DECREASE)
FROM NET REALIZED DISTRIBUTIONS IN
YEAR ENDED INVESTMENT CAPITAL IN RETURN OF TOTAL NET ASSET
DECEMBER 31, INCOME GAINS EXCESS CAPITAL DISTRIBUTIONS VALUE
- ------------ ------ ----- ------ ------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Investment Grade
Income Fund/(1)/
1997 $(0.071) $ -- $ -- $ -- $(0.071) $ 0.028
1996 (0.070) -- -- -- (0.070) (0.033)
1995 (0.071) -- (0.001)/(2)/ -- (0.072) 0.105
1994 (0.066) -- -- -- (0.066) (0.099)
1993 (0.065) (0.012) -- -- (0.077) 0.037
1992 (0.075) (0.024) -- -- (0.099) (0.011)
1991 (0.080) -- -- -- (0.080) 0.081
1990 (0.084) -- -- -- (0.084) (0.007)
1989 (0.083) -- -- -- (0.083) 0.043
1988 (0.084) -- -- -- (0.084) (0.006)
Government
Bond Fund/(1)/
1997 (0.061) -- -- -- (0.061) 0.011
1996 (0.062) -- -- -- (0.062) (0.026)
1995 (0.062) -- (0.001)/(2)/ -- (0.063) 0.065
1994 (0.063) -- -- -- (0.063) (0.073)
1993 (0.055) (0.003) -- (0.002) (0.060) 0.019
1992 (0.057) (0.005) -- -- (0.062) 0.004
1991 (0.022) (0.004) -- -- (0.026) 0.047
Money Market
Fund
1997 (0.053) -- -- -- (0.053) --
1996 (0.052) -- -- -- (0.052) --
1995 (0.057) -- -- -- (0.057) --
1994 (0.039) -- -- -- (0.039) --
1993 (0.030) -- -- -- (0.030) --
1992 (0.037) -- -- -- (0.037) --
1991 (0.060) -- -- -- (0.060) --
1990 (0.078) -- -- -- (0.078) --
1989 (0.086) -- -- -- (0.086) --
1988 (0.071) -- -- -- (0.071) --
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
(A) Including reimbursements and reductions.
(B) Excluding reductions. Certain Portfolios have entered into varying
arrangements with brokers who reduced a portion of the Portfolio's expenses.
(C) Excluding reimbursements and reductions.
(D) For fiscal years beginning on or after September 1, 1995, a Portfolio is
required to disclose its average commission rate per share for trades for
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
(1) The Government Bond Fund commenced operations on August 26, 1991. The
Investment Grade Income Fund was formerly known as Income Appreciation Fund.
(2) Distributions in excess of net investment income.
(3) Unaudited.
(4) Net investment income per share before reimbursement of fees by the
investment adviser were $0.065 in 1993 for Investment Grade Income Fund;
$0.055 in 1993 and $0.056 in 1992 for Government Bond Fund; and $0.030 in
1993 and $0.084/(3)/ in 1988 for Money Market Fund.
6
- ---------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------------------------
NET ASSET NET ASSETS
VALUE END OF NET PORTFOLIO AVERAGE
END OF TOTAL YEAR INVESTMENT OPERATING EXPENSES MANAGEMENT FEES TURNOVER COMMISSIONS
YEAR RETURN (000'S) INCOME (A) (B) (C) GROSS NET RATE RATE/(D)/
---- ------ ----- ------ --- --- --- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.112 9.45% $189,503 6.48% 0.51% 0.51% 0.51% 0.41% 0.41% 48% $ --
1.084 3.56% 157,327 6.50% 0.52% 0.52% 0.52% 0.40% 0.40% 108% --
1.117 17.84% 141,625 6.66% 0.53% -- 0.53% 0.41% 0.41% 126% --
1.012 (2.96)% 109,972 6.25% 0.58% -- 0.58% 0.42% 0.42% 129% --
1.111 10.80% 107,124 6.16% 0.54% -- 0.55% 0.45% 0.44% 55% --
1.074 8.33% 52,874 7.25% 0.59% -- 0.59% N/A N/A 71% --
1.085 16.75% 29,018 8.10% 0.60% -- 0.60% N/A N/A 52% --
1.004 8.02% 18,226 9.14% 0.56% -- 0.56% N/A N/A 5% --
1.011 13.52% 13,171 8.67% 0.78% -- 0.78% N/A N/A 4% --
0.968 8.20%/(3)/ 8,951 8.57% 0.77% -- 0.77% N/A N/A 12% --
1.047 7.08% 55,513 5.92% 0.67% 0.67% 0.67% 0.50% 0.50% 56% --
1.036 3.51% 46,396 5.90% 0.66% 0.66% 0.66% 0.50% 0.50% 112% --
1.062 13.06% 45,778 5.91% 0.69% -- 0.69% 0.50% 0.50% 180% --
0.997 (0.88)% 42,078 5.60% 0.70% -- 0.70% 0.50% 0.50% 106% --
1.070 7.51% 77,105 5.51% 0.61% -- 0.62% 0.50% 0.49% 35% --
1.051 6.59% 33,689 6.13% 0.68% -- 0.69% N/A N/A 67% --
1.047 7.60%** 7,591 5.55%* 0.54%* -- 0.54%* N/A N/A 65% --
1.000 5.47% 260,620 5.33% 0.35% 0.35% 0.35% 0.27% 0.27% N/A --
1.000 5.36% 217,256 5.22% 0.34% 0.34% 0.34% 0.28% 0.28% N/A --
1.000 5.84% 155,211 5.68% 0.36% -- 0.36% 0.29% 0.29% N/A --
1.000 3.93% 95,991 3.94% 0.45% -- 0.45% 0.31% 0.31% N/A --
1.000 3.00% 71,052 2.95% 0.42% -- 0.43% 0.32% 0.31% N/A --
1.000 3.78% 64,506 3.65% 0.44% -- 0.44% N/A N/A N/A --
1.000 6.67% 39,909 5.98% 0.43% -- 0.43% N/A N/A N/A --
1.000 8.63% 28,330 8.22% 0.42% -- 0.42% N/A N/A N/A --
1.000 9.69% 12,060 8.62% 0.58% -- 0.58% N/A N/A N/A --
1.000 7.30%/(3)/ 7,156 7.13% 0.60% -- 0.71% N/A N/A N/A --
</TABLE>
7
---------------------------
Allmerica Investment Trust
<PAGE>
HOW ARE THE FUNDS MANAGED?
The overall responsibility for the supervision of the affairs of the Trust
vests in the Board of Trustees of the Trust which meets on a quarterly basis.
Allmerica Financial Investment Management Services, Inc. (the "Manager") is
responsible for the management of the Trust's day-to-day business affairs and
has general responsibility for the management of the investments of the Funds.
The Manager, at its expense, has contracted with certain Sub-Advisers to manage
the investments of the Funds, subject to the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act").
The Manager is an indirect, wholly-owned subsidiary of Allmerica Financial
Company ("AFC"), a Delaware holding company for a group of affiliated companies,
the largest of which is First Allmerica, a life insurance company organized in
Massachusetts in 1844. The Manager, AFC and First Allmerica are located at 440
Lincoln Street, Worcester, Massachusetts 01653. The Manager succeeded Allmerica
Investment Management Company, Inc. ("AIMCO") as manager of the Trust on April
16, 1998. As part of a reorganization, AIMCO transferred to the Manager that
portion of its business relating to the provision of investment advisory
services exclusively to investment companies registered under the 1940 Act such
as the Trust while AIMCO retained its financial planning business. The same
personnel and procedures previously employed by AIMCO to service the Trust will
be used by the Manager. The Manager also serves as investment manager of the
Palladian Trust, another open-end investment management company.
The Manager has entered into Sub-Adviser Agreements for the management of the
investments of each of the Funds. Each Sub-Adviser, which has been selected on
the basis of various factors including management experience, investment
techniques, and staffing, is authorized to engage in portfolio transactions on
behalf of the applicable Fund subject to such general or specific instructions
as may be given by the Trustees and/or the Manager. The terms of a Sub-Adviser
Agreement cannot be changed materially without the approval of a majority
interest of the Shareholders of the affected Fund. The Trust and Manager have
filed an application with the SEC for an order of exemption that would permit
the Manager to enter into and materially amend sub-advisory agreements with non-
affiliated Sub-Advisers without obtaining shareholder approval. If the requested
relief is granted by the SEC, the Manager will have the ability, subject to
approval of the Trustees, to hire and terminate Sub-Advisers to the Funds and to
change materially the terms of the Sub-Advisory Agreements, including the
compensation paid to the Sub-Advisers, without the approval of the shareholders
of the Funds. The Sub-Advisers have been selected by the Manager and the
Trustees in consultation with BARRA RogersCasey, Inc. ("BARRA RogersCasey"), a
pension consulting firm. BARRA RogersCasey is wholly controlled by BARRA, Inc.
The cost of such consultation is borne by the Manager.
BARRA RogersCasey provides consulting services to pension plans representing
hundreds of billions of dollars in total assets and, in its consulting capacity,
monitors the investment performance of over 1,000 investment advisers. As a
consultant, BARRA RogersCasey has no decision-making authority with respect to
the Funds, and is not responsible for advice provided by the Manager or the Sub-
Advisers. From time to time, specific clients of BARRA RogersCasey and the Sub-
Advisers will be named in sales materials.
Ongoing performance of the Sub-Adviser is reviewed and evaluated by a
committee of the Board of Trustees, which also includes members who are officers
of First Allmerica or its affiliates, in consultation with BARRA RogersCasey.
Historical performance data for the Funds is set forth under "Financial
Highlights." The Manager is responsible for the payment of all fees to the Sub-
Advisers. The Sub-Advisers for each of the Funds are as follows:
<TABLE>
<S> <C>
Select Aggressive Growth Fund Nicholas-Applegate Capital Management, L.P.
Select International Equity Fund Bank of Ireland Asset Management (U.S.) Limited
Growth Fund Miller Anderson & Sherrerd, LLP
Equity Index Fund Allmerica Asset Management, Inc.
Investment Grade Income Fund Allmerica Asset Management, Inc.
Government Bond Fund Allmerica Asset Management, Inc.
Money Market Fund Allmerica Asset Management, Inc.
</TABLE>
For a sample listing of certain of the independent Sub-Adviser's clients, see
"Investment Management and Other Services" in the SAI. For more information on
the Sub-Advisers, see "What Are The Investment Objectives and Policies?" and
"Fund Manager Information."
The Manager also has entered into an Administrative Services Agreement with
First Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-
owned subsidiary of First Data Corporation, whereby Investor Services Group
performs administrative services for each of the Funds and is entitled to
receive an administrative fee and certain out-of-pocket expenses. The Manager is
responsible for the payment of the administrative fee to Investor Services
Group.
8
- ---------------------------
Allmerica Investment Trust
<PAGE>
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
Each Fund has a separate investment objective and policies designed to meet
different investment and financial needs, as described below. There is no
assurance that a Fund will achieve its investment objective.
A Fund's investment objective and investment policies are not fundamental and
may be changed without shareholder approval.
SELECT AGGRESSIVE GROWTH FUND
Investment Objective: The Select Aggressive Growth Fund seeks above-average
capital appreciation by investing primarily in common stocks of companies which
are believed to have significant potential for capital appreciation.
Sub-Adviser: Nicholas-Applegate Capital Management, L.P. ("NACM") serves as Sub-
Adviser to the Select Aggressive Growth Fund. NACM is an investment manager
supervising accounts with assets totaling approximately $30 billion in total
assets as of December 31, 1997. NACM's clients are primarily major corporate
employee benefit funds, public employee retirement plans, foundations and
endowment funds, investment companies and individuals. Founded in 1984, NACM is
located at 600 West Broadway, Suite 2900, San Diego, California 92101.
Investment Policies: Under normal circumstances, at least 65% of the assets of
the Select Aggressive Growth Fund will be invested in equity securities
consisting of common stocks, securities convertible into common stocks
(including bonds, notes and preferred stocks), and warrants. The Fund's assets
also may be invested in other debt securities and preferred stocks when such
securities are believed appropriate in light of the Fund's investment objective
and market conditions.
The selection of securities is made solely on the basis of their potential for
capital appreciation. Dividend and interest income from portfolio securities, if
any, is incidental to the Fund's investment objective. While investments may be
made in well-known and established companies, a significant portion of the
Fund's investments is expected to be in securities of newer and relatively
unseasoned companies or companies which represent new or changing industries.
At any given point, a substantial portion of the Fund's equity investments may
be in securities which are not listed for trading on national securities
exchanges and which, although publicly traded, may be less liquid than
securities issued by larger, more seasoned companies which trade on national
securities exchanges. Up to 15% of the Fund's net assets may be invested in
securities which are illiquid.
Securities of newer companies may be closely held with only a small portion of
their outstanding securities owned by the general public. Newer companies may
have relatively small revenue, lack depth of management and have a small share
of the market for their products or services; thus, they may be more vulnerable
to changes in economic conditions, market fluctuations and other factors
affecting the profitability or marketability of companies. Due to these and
other factors, the price movement of the securities held by the Fund can be
expected to be more volatile than is the case for the market as a whole, and the
net asset value of a share of the Fund may fluctuate significantly.
Consequently, the Fund should not be considered suitable for investors who are
unable or unwilling to assume the risk of loss inherent in an aggressive growth
portfolio, nor should investment in the Fund be considered a balanced or
complete investment program.
When NACM determines that market conditions warrant a temporary defensive
position, the Fund may invest without limitation in high-grade, fixed-income
securities or U.S. Government securities or hold assets in cash or cash
equivalents. For hedging purposes, the Fund may engage in the options and
futures strategies described under "Certain Investment Strategies and
Policies."
The Fund may also invest up to 25% of its assets in foreign securities (not
including its investments in American Depositary Receipts ("ADRs")).
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 95%. The portfolio turnover rate was the result of the Sub-
Adviser's investment process which typically results in above-average portfolio
turnover. Portfolio turnover rates may vary greatly from year to year. A high
portfolio turnover rate will likely result in greater brokerage costs to the
Fund.
9
---------------------------
Allmerica Investment Trust
<PAGE>
SELECT INTERNATIONAL EQUITY FUND
Investment Objective: The Select International Equity Fund seeks maximum long-
term total return (capital appreciation and income) primarily by investing in
common stocks of established non-U.S. companies.
Sub-Adviser: Bank of Ireland Asset Management (U.S.) Limited ("BIAM") serves as
Sub-Adviser for the Select International Equity Fund. BIAM is an indirect,
wholly-owned subsidiary of Bank of Ireland. Its main offices are at 26
Fitzwilliam Place, Dublin 2, Ireland. Its U.S. headquarters are at 20 Horseneck
Lane, Greenwich, CT 06830. Bank of Ireland provides investment management
services through a network of affiliated companies, including BIAM which
represents North American clients. As of December 31, 1997, Bank of Ireland
managed approximately $27 billion in global securities for Irish, United
Kingdom, Australian, South African, Canadian and U.S. clients.
Investment Policies: To achieve its objective, the Select International Equity
Fund will invest primarily in common stocks of established non-U.S. companies.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in the securities of companies domiciled in at least five foreign
countries, not including the United States. The Fund may also acquire fixed-
income debt securities. It will do so, at the discretion of BIAM, primarily for
defensive purposes. The Fund may invest up to 15% of its net assets on
securities which are illiquid.
The Fund's investments may include ADRs which may be sponsored or unsponsored
by the underlying issuer. The Fund may also utilize European Depositary Receipts
("EDRs"), which are similar to ADRs, in bearer form, designed for use in the
European securities market and Global Depositary Receipts ("GDRs"). Investments
in foreign securities carry additional risks not present in domestic securities.
See "Certain Investment Strategies and Policies - Foreign Securities." For
hedging purposes, the Fund may engage in the options and futures strategies
described under "Certain Investment Strategies and Policies." Certain state
insurance regulations may impose additional restrictions on the Fund's holdings
of foreign securities.
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 20%. The portfolio turnover rate for the Fund may vary greatly from
year to year.
GROWTH FUND
Investment Objective: The Growth Fund seeks to achieve long-term growth of
capital through investments primarily in common stocks and securities
convertible into common stocks that are believed to represent significant
underlying value in relation to current market prices. Realization of current
income, if any, is incidental to this objective.
Sub-Adviser: Miller Anderson & Sherrerd, LLP ("MAS") serves as Sub-Adviser for
the Growth Fund. MAS, which is a wholly owned indirect subsidiary of Morgan
Stanley, Dean Witter, Discover & Co., was organized in 1969 and is located at
One Tower Bridge, West Conshohocken, Pennsylvania 19428. MAS provides investment
counseling services to employee benefit plans, endowment funds, foundations and
other institutional investors and had over $60 billion in assets under
management as of December 31, 1997. MAS is the adviser of the MAS Funds, a
registered investment company offering investment alternatives to institutional
clients with a minimum initial investment of $1 million. MAS also manages
certain assets for First Allmerica and its affiliates.
Investment Policies: The Growth Fund is not limited to investments in any
particular type of company and may invest in any company which, in the opinion
of management, is likely to further its investment objective. The Growth Fund
will pursue its investment objective by maintaining a flexible position
regarding the type of companies, as well as the types of securities, in which it
will invest. Investments may include, but are not limited to, developing or
well-established companies, whether small or large. It is anticipated that there
will be a mix of assets in the Growth Fund. For example, portions of the Growth
Fund may be invested in equity securities of good quality or in well-established
companies considered to represent good value, based on factors including
historical investment standards (such as price/book value ratios and
price/earnings ratios) or in smaller emerging growth companies which are in the
development stage and are expected to achieve above-average earnings growth
because of special factors (such as changes in the economy, the relative
attractiveness of the various securities markets or changes in consumer demand).
The Growth Fund proposes to keep its assets fully invested, but may maintain
reasonable amounts in cash or in high-grade, short-term debt securities to meet
current expenses and anticipated redemptions, and during temporary periods
pending investment in accordance with its policies. The term "high-grade, short-
term debt securities" means the money market instruments described under the
Investment Grade Income Fund's Investment Policies.
10
- ---------------------------
Allmerica Investment Trust
<PAGE>
The Growth Fund normally will invest substantially all of its assets in
equity-type securities, including common stocks, warrants (which are options to
purchase common stock at specified prices during a specified time period with
the investment risk that the market value of the underlying common stock may not
be high enough in relation to the warrant exercise price to justify purchase
pursuant to the terms of the warrant), preferred stocks and debt securities
convertible into or carrying rights to purchase common stock or to participate
in earnings, and real estate securities to the extent permitted by paragraph
four under "Investment Restrictions" in the SAI. In periods considered by
management to warrant a more defensive position, the Growth Fund may place a
larger proportion of its portfolio in high-grade preferred stocks, bonds or
other fixed income securities, including U.S. Government securities, whether or
not convertible into stock or with rights attached, or retain cash. The Fund may
engage in the options and futures strategies described under "Certain Investment
Strategies and Policies."
The Growth Fund may invest in both listed and unlisted securities. The Growth
Fund also may invest in foreign as well as domestic securities. The Fund may
invest up to 25% of its assets in foreign securities (not including its
investments in ADRs). The Growth Fund will not concentrate its foreign
investments in any particular foreign country, or limit its investments to
issuers listed on particular exchanges or traded in particular money market
centers. Investments in foreign securities carry additional risks not present in
domestic securities. See "Certain Investment Strategies and Policies." The Sub-
Adviser will consider these and other factors before investing and will not
cause the Growth Fund to invest in foreign securities unless, in its opinion,
such investments will meet the standards and objectives of the Growth Fund.
The Fund may invest up to 15% of its net assets in securities which are
illiquid.
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 79%. The portfolio turnover rate for the Fund may vary greatly from
year to year.
EQUITY INDEX FUND
Investment Objective: The Equity Index Fund seeks to achieve investment results
that correspond to the aggregate price and yield performance of a representative
selection of common stocks that are publicly traded in the United States.
Sub-Adviser: Allmerica Asset Management, Inc. ("AAM") serves as Sub-Adviser to
the Equity Index Fund as well as the Investment Grade Income Fund, Government
Bond Fund and Money Market Fund, other series of the Trust. AAM, an indirect,
wholly-owned subsidiary of AFC, was incorporated in 1993 and is located at 440
Lincoln Street, Worcester, Massachusetts 01653. As of December 31, 1997, AAM had
approximately $11 billion in assets under management. AAM serves as investment
adviser to First Allmerica's General Account and to a number of affiliated
insurance companies and other affiliated accounts and as Adviser to Allmerica
Securities Trust, a diversified, closed-end investment management company.
Investment Policies: The Equity Index Fund will seek to achieve its objective by
attempting to replicate the aggregate price and yield performance of the
Standard & Poor's Composite Index of 500 Stocks ("S&P 500"). The Fund uses the
S&P 500 as the performance standard because it represents over 70 percent of the
total market value of all publicly-traded common stocks in the U.S., is well-
known to investors and, in the opinion of the Sub-Adviser, is representative of
the performance of common stocks publicly traded in the United States. Many, but
not all, of the stocks in the S&P 500 are issued by companies that are among the
500 largest as measured by the aggregate market value of their outstanding stock
(market price per share multiplied by number of shares outstanding). Inclusion
of a stock in the S&P 500 does not imply that S&P has endorsed it as an
investment. With respect to investing in common stocks, there can be no
assurance of capital appreciation and there is a substantial risk of market
decline.
The method used to select investments for the Fund involves investing in
common stocks in approximately the order of their weightings in the S&P 500
Index. In addition, the Fund purchases stocks with smaller weightings in order
to represent other sectors of the S&P 500 for diversification purposes.
The Equity Index Fund will invest only in those stocks, and in such amounts,
as its Sub-Adviser determines to be necessary or appropriate for the Fund to
approximate the performance of the S&P 500. Under normal circumstances, it is
expected that the Fund will hold approximately 500 different stocks included in
the S&P 500. The Fund may compensate for the omission of a stock that is
included in the S&P 500, or for purchasing stocks in other than the same
proportions that they are represented in the S&P 500, by purchasing stocks that
are believed to have characteristics that correspond to those of the omitted
stocks. The Fund may invest in short-term debt securities to maintain liquidity
or pending investment in stocks. The Fund also may engage in the options and
futures strategies described under "Certain Investment Strategies and Policies."
The Fund may invest up to 25% of its assets in foreign securities (not including
its investments in ADRs). The Fund may invest up to 15% of its net assets in
securities which are illiquid.
11
---------------------------
Allmerica Investment Trust
<PAGE>
Because of its policy of tracking the S&P 500, the Equity Index Fund is not
managed according to traditional methods of active investment management, which
involve the buying and selling of securities based upon investment analysis of
economic, financial and market factors. Consequently, the projected adverse
financial performance of a company normally would not result in the sale of the
company's stock and projected superior financial performance by a company
normally would not lead to an increase in the holdings of the company. From time
to time, the Sub-Adviser may make adjustments in the portfolio because of cash
flows, mergers, changes in the composition of the S&P 500 and other similar
reasons. Portfolio turnover is expected to be lower than that of most funds
investing in common stock. For the fiscal year ended December 31, 1997, the
portfolio turnover rate for the Fund was 9%.
The Equity Index Fund's ability to duplicate the performance of the S&P 500
will be influenced by the size and timing of cash flows into or out of the Fund,
the liquidity of the securities included in the S&P 500, transaction and
operating expenses and other factors. In addition, the Fund will incur expenses
(including advisory and administrative fees) that are not reflected in the
performance results of the S&P 500. These factors, among others, may result in
"tracking error," which is a measure of the degree to which the Fund's results
differ from the results of the S&P 500. Due to such factors, the return of the
Fund may be lower than the return of the S&P 500.
Tracking error is measured by the difference between total return for the S&P
500 with dividends reinvested and total return for the Fund with dividends
reinvested after deductions of transaction and operating expenses. For the 12
months ended December 31, 1997, the S&P 500 gained 33.36% versus a gain of
32.41% for the Equity Index Fund producing a tracking error of 0.95% before
advisory and administrative fees. Tracking error is monitored by the Sub-Adviser
on a regular basis. All tracking error deviations are reviewed to determine the
effectiveness of investment policies and techniques. If the tracking error
deviation exceeds industry standards for the Fund's asset size, the Sub-Adviser
will bring the deviation to the attention of the Trustees.
While the Board of Trustees of the Trust has selected the S&P 500 as the index
the Fund will attempt to replicate, the Trustees reserve the right to select
another index at any time without seeking shareholder approval if they believe
that the S&P 500 no longer represents a broad spectrum of common stocks that are
publicly traded in the United States or if there are legal, economic, or other
factors limiting the use of any particular index. If the Trustees change the
index which the Equity Index Fund attempts to replicate, the Equity Index Fund
may incur significant transaction costs in switching from one index to another.
S&P is not in any way affiliated with the Equity Index Fund or the Trust.
"Standard & Poor's," "Standard & Poor's 500" and "500" are trademarks of S&P.
INVESTMENT GRADE INCOME FUND
Investment Objective: The Investment Grade Income Fund seeks as high a level of
total return, which includes capital appreciation as well as income, as is
consistent with prudent investment management.
Sub-Adviser: AAM serves as Sub-Adviser to the Investment Grade Income Fund. See
"Equity Index Fund" for more information about AAM.
Investment Policies: The Fund will invest its assets in the following debt
securities and money market instruments.
Debt Securities:
(a) Obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities;
(b) Debt securities which are rated Aaa, Aa, A, or Baa by Moody's Investors
Service, Inc. ("Moody's"); AAA, AA, A, or BBB by Standard & Poor's Ratings
Service, a division of McGraw-Hill Companies, Inc. ("S&P"); or unrated but
determined by the Sub-Adviser to be of comparable quality;
(c) Obligations (payable in U.S. dollars) of, or guaranteed by, the Government
of Canada or of a Province of Canada or any instrumentality or political
subdivision thereof.
Money market instruments include obligations issued or guaranteed by the
United States Government, its agencies, or instrumentalities; commercial paper
rated Prime-1 by Moody's, or A-1 by S&P; or unrated, but determined by the Sub-
Adviser to be of comparable quality; bankers acceptances or negotiable
certificates of deposit issued by the 25 largest U.S. banks (in terms of
deposits); and cash and cash equivalents.
12
- ---------------------------
Allmerica Investment Trust
<PAGE>
The Fund may engage in the options and futures strategies described under
"Certain Investment Strategies and Policies."
The debt securities in which the Fund may invest are considered "investment
grade" in that they generally are suitable for purchase by prudent investors.
However, the lowest category of investment grade securities (rated Baa by
Moody's or BBB by S&P) may have speculative characteristics, such that changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case of
debt securities with higher ratings. The portfolio of the Fund is managed
actively by AAM, as Sub-Adviser, in order to anticipate events leading to price
or ratings changes. If the rating of a security falls below investment grade, or
an unrated security is deemed to have fallen below investment grade, AAM
analyzes relevant economic and market data in making a determination of whether
to retain or dispose of the investment. The performance of the securities in the
portfolio is monitored continuously, and they are purchased and sold as
conditions warrant and permit.
The Fund may invest up to 25% of its assets in foreign securities (not
including its investments in ADRs) including those listed in (c) above. The Fund
may invest up to 15% of its net assets in securities which are illiquid.
Obligations in which the Fund may invest include debt obligations of
supranational entities. Supranational entities include international
organizations designed or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and related
government agencies. Obligations of supranational entities may be supported by
appropriated but unpaid commitments of their member countries, and there is no
assurance that these commitments will be undertaken or met in the future. The
Fund may not invest more than 25% of its assets in debt obligations of
supranational entities.
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 48%. The portfolio turnover rate for the Fund may vary greatly from
year to year. A high portfolio turnover rate may result in greater brokerage
costs to the Fund.
See the Appendix to the Prospectus for an explanation of the ratings of
Moody's and S&P.
GOVERNMENT BOND FUND
Investment Objective: The Government Bond Fund seeks high income, preservation
of capital, and maintenance of liquidity primarily through investments in debt
instruments issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government securities") and in related options,
futures, and repurchase agreements. Under normal conditions, at least 80% of the
Fund's assets will be invested in U.S. Government securities.
Sub-Adviser: AAM serves as Sub-Adviser to the Government Bond Fund. See "Equity
Index Fund" for more information about AAM.
Investment Policies: Some U.S. Government securities, such as Treasury bills,
notes, and bonds, which differ only in their interest rates, maturities, and
times of issuance, are supported by the full faith and credit of the United
States. Other U. S. Government securities are supported by (i) the right of the
issuer to borrow from the U.S. Treasury, (ii) discretionary authority of the
U.S. Government to purchase the obligations of the agency or instrumentality, or
(iii) only the credit of the instrumentality itself. No assurances can be given
that the U.S. Government would provide financial support to U.S. Government
sponsored instrumentalities if it is not obligated to do so by law. The Fund may
invest in mortgage-backed government securities, including pass-through
securities and participation certificates of the Government National Mortgage
Association ("Ginnie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie
Mac") and the Federal National Mortgage Association ("Fannie Mae").
The Government Bond Fund may invest in any other security or agreement
collateralized or otherwise secured by U.S. Government securities. The Fund also
may invest in separately traded principal and interest components of securities
guaranteed or issued by the U.S. Treasury if such components are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities Program. The Fund may enter into repurchase agreements and from time
to time may have temporary investments in short-term debt obligations (including
certificates of deposit, bankers acceptances and commercial paper) pending the
making of other investments or for liquidity purposes.
The Government Bond Fund may engage in several active management strategies,
including the lending of portfolio securities, forward commitment purchases of
securities, writing covered call and covered put options on U.S. Government
securities, purchasing such call and put options and entering into closing
purchase and sale transactions. The Fund also may engage in the options and
futures strategies described under "Certain Investment Strategies and Policies."
The Fund may invest up to 15% of its net assets in securities which are
illiquid.
13
---------------------------
Allmerica Investment Trust
<PAGE>
Obligations in which the Fund may invest include debt obligations of
supranational entities. Supranational entities include international
organizations designed or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and related
government agencies. Obligations of supranational entities may be supported by
appropriated but unpaid commitments of their member countries, and there is no
assurance that these commitments will be undertaken or met in the future. The
Fund may not invest more than 25% of its assets in debt obligations of
supranational entities.
U.S. Government securities may be purchased or sold without regard to the
length of time they have been held to attempt to take advantage of short-term
differentials in yields, with the objective of seeking income while conserving
capital. While short-term trading increases portfolio turnover, the Government
Bond Fund incurs little or no brokerage costs for U.S. Government securities.
For the fiscal year ended December 31, 1997, the portfolio turnover rate for the
Fund was 56%.
MONEY MARKET FUND
Investment Objective: The Money Market Fund seeks to obtain maximum current
income consistent with preservation of capital and liquidity.
Sub-Adviser: AAM serves as Sub-Adviser to the Money Market Fund. See "Equity
Index Fund" for more information about AAM.
Investment Policies: The Fund seeks to achieve its objective by investing in the
following high quality money market instruments:
(a) Obligations issued or guaranteed by the United States Government, its
agencies, or instrumentalities;
(b) Commercial paper which meets the ratings requirements as set forth in the
paragraph below;
(c) Obligations of banks or savings and loan associations (such as bankers
acceptances and certificates of deposit, including dollar-denominated
obligations of foreign branches of U.S. banks ("Eurodollars") and U.S.
branches of foreign banks if such U.S. branches are subject to state
banking requirements and Federal Reserve reporting requirements) which at
the date of the investment have deposits of at least $1 billion as of
their most recently published financial statements;
(d) Repurchase agreements with respect to obligations described under (a)
above (such obligations subject to repurchase agreement may bear
maturities of more than one year) (For more information concerning
repurchase agreements, see "Certain Investment Strategies and Policies.");
and
(e) Cash and cash equivalents.
The Money Market Fund will not purchase any security unless (i) the security
has received the highest or second highest quality rating by at least two NRSROs
or by one NRSRO if only one has rated the security, or (ii) the security is
unrated and in the opinion of AAM, as Sub-Adviser, in accordance with guidelines
adopted by the Trustees, is of a quality comparable to one of the two highest
ratings of an NRSRO. These standards must be satisfied at the time an investment
is made. If the quality of the investment later declines, the Fund may continue
to hold the investment, but the Trustees will evaluate whether the security
continues to present minimal credit risks. See the Appendix for an explanation
of NRSRO ratings.
The Fund will limit its portfolio investments to securities with a remaining
maturity of 397 days as of the time of purchase, in accordance with the
Trustees' guidelines. The portfolio will be managed so as to maintain a dollar
weighted maturity of 90 days or less. In order to maximize the yield on its
assets, the Fund intends to be as fully invested at all times as is reasonably
practicable. There is always the risk that the issuer of an instrument may be
unable to make payment upon maturity.
The Fund may invest up to 25% of its assets in U.S. dollar denominated foreign
securities (not including its investments in ADRs). The Fund may invest up to
10% of its net assets in securities which are illiquid.
MANAGEMENT FEES AND EXPENSES
Under its Management Agreement with the Trust, the Manager is obligated to
perform certain administrative and management services for the Trust; furnishes
to the Trust all necessary office space, facilities, and equipment; and pays the
compensation, if any, of officers and Trustees who are affiliated with the
Manager. Other than the expenses specifically assumed by the Manager under the
Management Agreement, all expenses incurred in the operation of the Trust are
borne by the Trust, including fees and expenses associated with the registration
and qualification of the Trust's shares under the Securities Act of 1933 (the
"1933 Act"); other fees
14
- ---------------------------
Allmerica Investment Trust
<PAGE>
payable to the SEC; independent accountant, legal and custodian fees;
association membership dues; taxes; interest; insurance premiums; brokerage
commissions; fees and expenses of the Trustees who are not affiliated with the
Manager; expenses for proxies, prospectuses and reports to shareholders; Fund
recordkeeping expenses and other expenses.
For its services to the Funds, the Manager receives fees computed daily at an
annual rate based on the average daily net asset value of each Fund as set forth
below:
<TABLE>
<CAPTION>
SELECT SELECT EQUITY INVESTMENT
AGGRESSIVE INTERNATIONAL GROWTH INDEX GRADE
GROWTH FUND EQUITY FUND FUND FUND INCOME FUND
----------- ----------- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Manager Fee (1) (1) (1) (2) (3)
<CAPTION>
GOVERNMENT MONEY
BOND MARKET
FUND FUND
---- ----
<S> <C> <C>
Manager Fee 0.50% (2)
</TABLE>
(1) The Manager's fees for the Select Aggressive Growth Fund, Select
International Equity Fund and Growth Fund, computed daily at an annual rate
based on the average daily net assets of each Fund, are based on the
following schedule:
<TABLE>
<CAPTION>
SELECT
SELECT AGGRESSIVE INTERNATIONAL
ASSETS GROWTH FUND EQUITY FUND GROWTH FUND
------------ ----------- ----------- -----------
<S> <C> <C> <C>
First $100 Million....... 1.00% 1.00% 0.60%
Next $150 Million........ 0.90% 0.90% 0.60%
Next $250 Million........ 0.85% 0.85% 0.40%
Over $500 Million........ 0.85% 0.85% 0.35%
</TABLE>
(2) The Manager's fees for the Equity Index Fund and Money Market Fund, computed
daily at an annual rate based on the average daily net assets of each Fund,
are based on the following schedule:
<TABLE>
<CAPTION>
EQUITY MONEY
INDEX MARKET
ASSETS FUND FUND
------ ---- ----
<S> <C> <C>
First $50 Million.................. 0.35% 0.35%
Next $200 Million.................. 0.30% 0.25%
Over $250 Million.................. 0.25% 0.20%
</TABLE>
(3) The Manager's fees for the Investment Grade Income Fund, computed daily at
an annual rate based on the average daily net assets of each Fund, are based
on the following schedule:
<TABLE>
<CAPTION>
INVESTMENT
GRADE
ASSETS INCOME FUND
------ -----------
<S> <C>
First $50 Million.................. 0.50%
Next $50 Million.................. 0.45%
Over $100 Million.................. 0.40%
</TABLE>
The Manager is responsible for the payment of all fees to the Sub-Advisers.
The Manager pays each Sub-Adviser fees computed daily at an annual rate based on
the average daily net asset value of each Fund as set forth below. In certain
Funds, Sub-Adviser fees vary according to the level of assets in such Funds,
which will reduce the fees paid by the Manager as Fund assets grow but will not
reduce the operating expenses of such Funds.
15
---------------------------
Allmerica Investment Trust
<PAGE>
<TABLE>
<CAPTION>
SELECT SELECT EQUITY INVESTMENT
AGGRESSIVE INTERNATIONAL GROWTH INDEX GRADE
GROWTH FUND EQUITY FUND FUND FUND INCOME FUND
----------- ----------- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Sub-Adviser Fee (4) (5) (6) 0.10% 0.20%
<CAPTION>
GOVERNMENT MONEY
BOND MARKET
FUND FUND
---- ----
<S> <C> <C>
Sub-Adviser Fee 0.20% 0.10%
</TABLE>
(4) For its services, NACM will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Aggressive Growth Fund,
under the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $100 Million.................. 0.60%
Next $150 Million.................. 0.55%
Next $250 Million.................. 0.50%
Over $500 Million.................. 0.45%
</TABLE>
(5) For its services, BIAM will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select International Equity
Fund, under the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $50 Million.................. 0.45%
Next $50 Million.................. 0.40%
Over $100 Million.................. 0.30%
</TABLE>
(6) For its services, MAS will receive a fee based on the aggregate assets of
the Growth Fund and certain other accounts of the Manager and its affiliates
which are managed by MAS, under the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $50 Million.................. 0.50%
Next $50 Million.................. 0.375%
Next $400 Million.................. 0.25%
Next $350 Million.................. 0.20%
Over $850 Million.................. 0.15%
</TABLE>
For the fiscal year ended December 31, 1997, each Fund paid the Manager gross
fees before reimbursement at the following effective rates based on the Fund's
average daily net assets:
<TABLE>
<CAPTION>
FUND RATE
---- ----
<S> <C>
Select Aggressive Growth Fund........................ 0.95%
Select International Equity Fund..................... 0.97%
Growth Fund.......................................... 0.43%
Equity Index Fund.................................... 0.31%
Investment Grade Income Fund......................... 0.41%
Government Bond Fund................................. 0.50%
Money Market Fund.................................... 0.27%
</TABLE>
16
- ---------------------------
Allmerica Investment Trust
<PAGE>
The following table shows voluntary expense limitations which the Manager has
declared for each Fund and the operating expenses incurred for the fiscal year
ended December 31, 1997 for each Fund:
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE DAILY ASSETS
----------------------------------
VOLUNTARY EXPENSE OPERATING
FUND LIMITATIONS EXPENSES+
---- ----------- ---------
<S> <C> <C>
Select Aggressive Growth Fund 1.35% 0.99%
Select International Equity Fund 1.50% 1.15%
Growth Fund 1.20% 0.47%
Equity Index Fund 0.60% 0.44%
Investment Grade Income Fund 1.00% 0.51%
Government Bond Fund 1.00% 0.67%
Money Market Fund 0.60% 0.35%
</TABLE>
- ---------------------------------------
+ Including reductions such as directed brokerage credits. See "Brokerage
Allocation - Directed Brokerage Program" in the SAI.
The Manager will voluntarily reimburse its fees and any expenses above the
expense limitations. The expense limitations are voluntary and may be removed at
any time after a Fund's first fiscal year of operations with notice to existing
shareholders. The Manager reserves the right to recover from a Fund any fees,
within a current fiscal year period, which were reimbursed in that same year to
the extent that total annual expenses did not exceed the applicable expense
limitation. The expenses which are subject to the voluntary expense limitations
include management fees, independent accountant, legal and custodian fees;
recordkeeping expenses; fees and expenses of Trustees who are not affiliated
with the Manager; association membership dues, insurance; expenses for proxies,
prospectuses and reports to shareholders and fees associated with the
registration of Fund shares. Non-recurring and extraordinary expenses generally
are excluded in the determination of expense ratios of the Funds for purposes of
determining any applicable expense waiver or reimbursement. Quotations of yield
or total return for any period when an expense limitation is in effect will be
greater than if the limitation had not been in effect.
FUND MANAGER INFORMATION
The following individuals are primarily responsible for the day-to-day
management of the particular Funds as indicated below:
The following individuals have served as members of a committee of fund
managers for the SELECT AGGRESSIVE GROWTH FUND since March 1994:
Lawrence S. Speidell is a Partner and Director of Global/Systematic Portfolio
Management and Research at NACM. Prior to joining NACM in 1994, Mr. Speidell
spent ten years with Batterymarch Financial Management. He was also Senior Vice
President and Portfolio Manager at Putnam Management Company from 1971 to 1983.
John J. Kane is a Partner and Senior Portfolio Manager for the U.S. Systematic
portfolios at NACM. He has 28 years of economic/investment experience. Prior to
joining NACM in 1994, Mr. Kane was employed by ARCO Investment Management
Company and General Electric Company.
Mark W. Stuckelman, Portfolio Manager, U.S. Systematic, joined NACM in 1995.
Prior to joining NACM, he was employed for five years with Wells Fargo Bank's
Investment Management Group, Fidelity Management Trust Co., and BARRA, Inc.
The following portfolio managers are involved in the investment process
utilized for the SELECT INTERNATIONAL EQUITY FUND:
Christopher Reilly, Chief Investment Officer, joined BIAM in 1980 and has had
overall responsibility for asset management since 1985. Previously, he worked
in the United Kingdom in stockbrokering and investment management.
Denis Donovan, Director-Portfolio Management, received an MBA from University
College Dublin. Prior to joining BIAM in 1985, he spent more than 13 years in
the money market and foreign exchange operations of the Central Bank of
Ireland, the Irish equivalent of the U.S. Federal Reserve. He has overall
responsibility for the portfolio management function for all of BIAM's client
base.
17
---------------------------
Allmerica Investment Trust
<PAGE>
Peter Wood joined BIAM in 1985 after spending five years with another leading
investment management firm. He is responsible for portfolio construction.
Jane Neill, Senior Equity Analyst, joined BIAM in 1994. Previously, she was
Chief Investment Officer with another leading Irish investment management
firm.
The following individuals serve as members of a committee of fund managers
for the GROWTH FUND:
Gary G. Schlarbaum, CFA and Managing Director, joined MAS in 1987 and has
served on the committee since 1993. Prior to 1987, Mr. Schlarbaum was employed
by First Chicago Investment Advisors from 1984 to 1987. Prior to First Chicago,
Mr. Schlarbaum held teaching positions at Purdue University and the University
of Pennsylvania.
Arden C. Armstrong, CFA and Managing Director, joined the firm in 1986. Prior
to joining MAS, Ms. Armstrong was employed by Evans Economics, Inc.
Nicholas Kovich, CFA and Managing Director, joined MAS in 1988 and has served
on the committee since the Fund's inception in April 1988. Prior to MAS, Mr.
Kovich was employed by Waddell & Reed Asset Management Company from 1982 to
1988 as an Investment Research Analyst and as Assistant Vice President and
Portfolio Manager.
Robert J. Marcin, CFA and Managing Director, joined MAS in 1988. Prior to
joining MAS in 1988, Mr. Marcin was an Account Executive at Smith Barney Harris
Upham and Company, Inc.
Brian Kramp, CFA and Vice President, joined MAS in 1997. Mr. Kramp was employed
as an analyst and portfolio manager by Meridian Investment Company from 1985 to
1997.
James J. Jolinger, Principal, joined MAS in 1994 and has served on the
committee since 1997. Prior to 1994, Mr. Jolinger was employed by Oppenheimer
Capital as an Equity Analyst from 1987 to 1994.
The following individual has served as fund manager for the INVESTMENT GRADE
INCOME FUND since May 1994:
Lisa M. Coleman, CFA and Vice President of AAM, was a Deputy Manager/Portfolio
Manager in the global fixed income area for Brown Brothers Harriman & Company
in New York prior to joining AAM in May 1994.
The following individual has served as fund manager for the GOVERNMENT BOND
FUND since May 1995:
Richard J. Litchfield, CFA and Vice President of AAM, was a mortgage-backed
securities analyst and trader at Keystone Investments, Inc. prior to joining
AAM in May 1995.
The following individual has served as fund manager for the EQUITY INDEX FUND
and MONEY MARKET FUND since March 1995:
John C. Donohue, Assistant Vice President of AAM, was a portfolio manager at CS
First Boston Investment Management prior to joining AAM in 1995.
HOW ARE SHARES VALUED?
The net asset value of the shares of each Fund is determined once daily as of
the close of regular trading on the New York Stock Exchange (the "Exchange") on
each day on which the Exchange is open for trading.
Equity securities are valued on the basis of their market value if market
quotations are readily available from the primary market on which the security
is traded. In other cases, they are valued at their fair value as determined in
good faith by the Trustees, although the actual calculations may be performed by
persons acting pursuant to the direction of the Trustees. Debt securities (other
than short-term obligations) normally are valued on the basis of valuations
formulated by a pricing service which utilizes data processing methods to
determine valuations for normal, institutional-size trading units of such
securities. Such methods include the use of market transactions for comparable
securities and various relationships between securities which generally are
recognized by institutional traders. All securities of the Money Market Fund are
valued at amortized cost. Debt obligations in the other Funds having a remaining
maturity of 60 days or less are valued at amortized cost when it is determined
that amortized cost approximates fair value. Short-term
18
- ---------------------------
Allmerica Investment Trust
<PAGE>
obligations of the other Funds having a remaining maturity of more than 60 days
are marked to market based upon readily available market quotations for such
obligations or similar securities.
Unlike the Money Market Fund which attempts to maintain a stable net asset
value, the net asset value of the other Funds will fluctuate.
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
It is the policy of the Trust to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies so that the Trust will
not be subject to federal income tax on any net income and any capital gains to
the extent they are distributed or are deemed to have been distributed to
shareholders. Dividends out of net investment income will be declared and paid
quarterly in the case of the Growth Fund, Equity Index Fund, Investment Grade
Income Fund and Government Bond Fund; annually in the case of the Select
Aggressive Growth Fund and Select International Equity Fund; and daily in the
case of the Money Market Fund. Distributions of net capital gains for the year,
if any, are made annually. All dividends and capital gain distributions are
applied to purchase additional Fund shares at net asset value as of the payment
date. Fund shares are held by the Separate Accounts and any distributions are
reinvested automatically by the Separate Accounts. Tax consequences to investors
in the Separate Accounts which are invested in the Trust are described in the
prospectuses for such Accounts.
SALE AND REDEMPTION OF SHARES
Shares of the Funds are sold in a continuous offering and currently may be
purchased only by the Separate Accounts of First Allmerica or its subsidiaries.
The Separate Accounts are the funding mechanisms for variable annuity contracts
and variable life insurance policies. The Separate Account invests in shares of
one or more of the Funds. Shares of each Fund are sold at their net asset value
as next computed after receipt of the purchase order without the addition of any
selling commission or "sales load." The Distributor, Allmerica Investments,
Inc., at its expense, may provide promotional incentives to dealers that sell
variable annuity contracts for which the Funds serve as investment
vehicles.
Shares of the Trust are also currently being issued under separate
prospectuses to Separate Accounts of Allmerica Financial Life, First Allmerica
and subsidiaries of First Allmerica which issue variable or group annuity
policies or variable premium life insurance policies ("mixed funding"). Although
neither Allmerica Financial Life nor the Trust currently foresees any
disadvantage, it is conceivable that in the future such mixed funding may be
disadvantageous for variable or group annuity policyowners or variable premium
life insurance policyowners ("Policyowners"). The Trustees of the Trust intend
to monitor events in order to identify any conflicts that may arise between such
Policyowners and to determine what action, if any, should be taken in response
thereto. If the Trustees were to conclude that separate funds should be
established for variable annuity, group annuity, and variable premium life
Separate Accounts, Allmerica Financial Life would pay the attendant expenses.
The Trust has filed an application with the SEC for an exemptive order to permit
Fund shares to be sold to variable annuity and life insurance separate accounts
of both affiliated and unaffiliated life insurance companies and qualified
pension and retirement plans outside of the separate account context. If the
requested order is granted, any Fund may serve as a funding vehicle for all
types of variable annuity contracts and variable life insurance contracts
offered by various participating insurance companies and for qualified plans;
material irreconcilable conflicts may possibly arise among various contract
owners and plan participants and the Board of Trustees will monitor events in
order to identify the existence of any material irreconcilable conflict and
determine what action, if any, should be taken in response to such
conflict.
The Trust redeems shares of each Fund at their net asset value as next
computed after receipt of the request for redemption. The redemption price may
be more or less than the shareholder's cost. No fee is charged by the Trust on
redemption. The variable contracts funded through the Separate Accounts are sold
subject to certain fees and charges which may include sales and redemption
charges as described in the prospectus or offering circular for the Separate
Account.
Redemption payments will be paid within seven days after receipt of the
written request therefor by the Trust, except that the right of redemption may
be suspended or payments postponed whenever permitted by applicable law and
regulations.
HOW IS PERFORMANCE DETERMINED?
A Fund's performance may be quoted in advertising. A Fund's performance may be
compared with the performance of other investments or relevant indices. All
performance information is based on historical results and is not intended to
indicate future performance.
19
---------------------------
Allmerica Investment Trust
<PAGE>
For Funds other than the Money Market Fund, "yield" is calculated by dividing
a Fund's annualized net investment income per share during a recent 30-day
period by the net asset value per share on the last day of that period. For the
Money Market Fund, "yield" represents an annualization of the change in value of
an investment (excluding any capital changes) in the Fund for a specific seven-
day period; "effective yield" compounds that yield for a year and is, for that
reason, greater than the Fund's yield.
Total returns are based on the overall dollar or percentage change in value of
a hypothetical investment in a Fund assuming all dividends and capital gain
distributions are reinvested. Cumulative total return reflects the Fund's
performance over a stated period of time. Average annual total return reflects
the hypothetical, annually-compounded return that would have produced the same
cumulative return if the Fund's performance had been constant over the entire
period. Because average annual returns tend to smooth out variations in the
Fund's return, they are not the same as actual year-by-year results.
YIELDS AND TOTAL RETURNS QUOTED FOR THE FUNDS INCLUDE THE EFFECT OF DEDUCTING
THE FUNDS' EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO A
PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE FUNDS CAN BE PURCHASED ONLY
THROUGH A VARIABLE ANNUITY CONTRACT OR VARIABLE LIFE CONTRACT, YOU SHOULD REVIEW
CAREFULLY THE PROSPECTUS FOR THE SEPARATE ACCOUNTS FOR INFORMATION ON RELEVANT
CHARGES AND EXPENSES. INCLUDING THESE CHARGES IN THE QUOTATIONS OF THE FUNDS'
YIELDS AND TOTAL RETURNS WOULD HAVE THE EFFECT OF DECREASING PERFORMANCE.
PERFORMANCE INFORMATION FOR THE FUNDS MUST ALWAYS BE ACCOMPANIED BY, AND BE
REVIEWED WITH, PERFORMANCE INFORMATION FOR THE SEPARATE ACCOUNTS WHICH INVEST IN
THE FUNDS.
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established as a Massachusetts business trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated October 11, 1984
(the "Trust Declaration"). A copy of the Trust Declaration is on file with the
Secretary of the Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares of beneficial interest
which may be divided into an unlimited number of series of such shares, and
which are divided presently into 14 series of shares, one series underlying each
Fund. Seven of the series are not included in this Prospectus. The Trust's
shares are entitled to one vote per share (with proportional voting for
fractional shares). The rights accompanying Fund shares are vested legally in
the Separate Accounts. As a matter of policy, however, holders of variable
premium life insurance or variable annuity contracts funded through the Separate
Accounts have the right to instruct the Separate Accounts as to voting Fund
shares on all matters to be voted on by Fund shareholders. Voting rights of the
participants in the Separate Accounts are set forth in the prospectus or
offering circular relating to the Separate Accounts. See "Organization of the
Trust" in the SAI for the definition of a "majority vote" of shareholders.
The Trust is not required to hold annual meetings of shareholders. The
Trustees or shareholders holding at least 10% of the outstanding shares may call
special meetings of shareholders.
FUND RECORDKEEPING AGENT
Investor Services Group calculates net asset value per share and maintains
general accounting records for each Fund. Investor Services Group is entitled to
receive an annual Fund recordkeeping fee based on Fund assets and certain out-
of-pocket expenses.
CUSTODIAN
Bankers Trust Company, 130 Liberty Street, New York, New York 10006, is the
Custodian of the investment securities and other assets of the Trust.
INVESTMENT RESTRICTIONS
The following is a description of certain investment restrictions which are
fundamental and may not be changed with respect to a Fund without shareholder
approval. For a description of certain other investment restrictions, reference
should be made to the SAI.
1. No Fund will concentrate its investments in particular industries,
including debt obligations of supranational entities and foreign governments,
but a Fund may invest up to 25% of the value of its total assets in a particular
industry. The restriction does not apply to investments in obligations issued or
guaranteed by the United States of America, its agencies or instrumentalities,
or to investments by the Money Market Fund in securities issued or guaranteed by
domestic branches of U.S. banks.
20
- ---------------------------
Allmerica Investment Trust
<PAGE>
2. As to 75% of the value of its total assets (100% for the Money Market
Fund), no Fund will invest more than 5% of the value of its total assets in the
securities of any one issuer (other than securities issued by or guaranteed as
to principal or interest by the United States Government or any agency or
instrumentality thereof) or acquire more than 10% of the voting securities of
any issuer. The remaining 25% of assets (other than for the Money Market Fund)
may be invested in the securities of one or more issuers without regard to such
limitations.
These limitations apply as of the time of purchase. If through market action
the percentage limitations are exceeded, the Fund will not be required to reduce
the amount of its holdings in such investments.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
REPURCHASE AGREEMENTS (APPLICABLE TO ALL FUNDS)
Each Fund may invest in repurchase agreements, under which the Fund acquires
ownership of a security (ordinarily U.S. Government securities) but the seller
agrees at the time of sale to purchase the security at a mutually agreed upon
time and price. Should any seller of a repurchase agreement fail to repurchase
the underlying security, or should any seller become insolvent or involved in a
bankruptcy proceeding, a Fund could incur disposition costs and losses.
Repurchase agreements maturing in more than seven days are subject to the 15%
(10% for the Money Market Fund) limit on illiquid securities.
"WHEN-ISSUED" SECURITIES (APPLICABLE TO ALL FUNDS)
Each Fund may purchase securities on a when-issued or delayed delivery basis.
Delivery and payment normally take place 15 to 45 days after the commitment to
purchase. No income accrues on when-issued securities prior to delivery.
Purchase of when-issued securities involves the risk that yields available in
the market when delivery occurs may be higher than those available when the
when-issued order is placed resulting in a decline in the market value of the
security. There is also the risk that under some circumstances the purchase of
when-issued securities may act to leverage the Fund.
LENDING OF SECURITIES (APPLICABLE TO ALL FUNDS)
For the purpose of realizing additional income, the Funds may lend portfolio
securities to broker-dealers or financial institutions amounting to not more
than 33 1/3% of their respective total assets taken at current value. While any
such loan is outstanding, a Fund will continue to receive amounts equal to the
interest or dividends paid by the issuer on the securities, as well as interest
(less any rebates to be paid to the borrower) on the investment of the
collateral or a fee from the borrower. Each Fund will have the right to call
each loan and obtain the securities. Lending portfolio securities involves
certain risks, including possible delays in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will be made in accordance with
guidelines established by the Board of Trustees.
FOREIGN SECURITIES (APPLICABLE TO EACH FUND EXCEPT THE GOVERNMENT BOND
FUND)
Investments in foreign markets involve substantial risks typically not
associated with investing in the U. S., which should be considered carefully by
the investor. Such risks may include political and economic instability,
differing accounting and financial reporting standards, higher commission rates
on foreign portfolio transactions, less readily available public information
regarding issuers, potentially adverse changes in tax and exchange control
regulations, and the potential for restrictions on the flow of international
capital. Foreign securities also involve currency risks. Accordingly, the
relative strength of the U.S. dollar may be an important factor in the
performance of the Fund, depending on the extent of the Fund's foreign
investments. The Money Market Fund may invest only in U.S. dollar denominated
foreign securities. Some foreign securities exchanges may not be as developed or
efficient as those in the United States and securities traded on foreign
securities exchanges generally are subject to greater price volatility. There is
also the possibility of adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation and limitations on the
removal of funds or other assets.
Investments in emerging countries involve exposure to economic structures that
generally are less diverse and mature than in the United States, and to
political systems which may be less stable. In addition, securities of issuers
located in emerging countries may have limited marketability and may be subject
to more abrupt or erratic price fluctuations.
The Funds may buy or sell foreign currencies, options on foreign currencies
and foreign currency futures contracts and options thereon and, in addition, the
Select International Equity Fund may invest in foreign currency forward
contracts. Although such instruments may reduce the risk of loss due to a
decline in the value of the currency that is sold, they also limit any possible
gain
21
---------------------------
Allmerica Investment Trust
<PAGE>
which might result should the value of the currency increase. Such instruments
will be used primarily to protect a Fund from adverse currency movements;
however, they also involve the risk that anticipated currency movements will not
be accurately predicted, thus adversely affecting a Fund's total return. See
"Options and Futures Transactions."
The Funds' investments may include ADRs. For many foreign securities, there
are U.S. dollar-denominated ADRs which are traded in the United States on
exchanges or over the counter. ADRs represent the right to receive securities of
foreign issuers deposited in a domestic bank or a correspondent bank. An ADR may
be sponsored by the issuer of the underlying foreign security, or it may be
issued in unsponsored form. The holder of a sponsored ADR is likely to receive
more frequent and extensive financial disclosure concerning the foreign issuer
than the holder of an unsponsored ADR and generally will bear lower transaction
charges. Each Fund may invest in both sponsored and unsponsored ADRs. The Select
International Equity Fund also may utilize EDRs, which are designed for use in
European securities markets, and also may invest in GDRs.
Obligations in which the Investment Grade Income Fund and Government Bond Fund
may invest include debt obligations of supranational entities. Supranational
entities include international organizations designated or supported by
governmental entities to promote economic reconstruction or development and
international banking institutions and related government agencies. Obligations
of supranational entities may be supported by appropriated but unpaid
commitments of their member countries, and there is no assurance that these
commitments will be undertaken or met in the future. A Fund may not invest more
than 25% of its assets in debt obligations of supranational entities.
Certain state insurance regulations may impose additional restrictions on a
Fund's holdings of foreign securities.
OPTIONS AND FUTURES TRANSACTIONS (APPLICABLE TO EACH FUND EXCEPT THE MONEY
MARKET FUND), FORWARD CONTRACTS (APPLICABLE TO THE SELECT INTERNATIONAL EQUITY
FUND)
Through the writing and purchase of put and call options on its securities,
financial indices and foreign currencies, and the purchase and sale of futures
contracts and related options with respect to securities, financial indices and
(in the case of the Select International Equity Fund) foreign currencies in
which it may invest, each Fund except the Money Market Fund may at times seek to
hedge against fluctuations in net asset value, or to a limited extent to engage
in non-hedging strategies. A Fund may not purchase or sell a futures contract
for non-hedging purposes if immediately thereafter the sum of the amount of
margin deposits and amount of variation margins paid from time to time on a
Fund's existing futures and related options positions and premiums paid for
related options would exceed 5% of the market value of the Fund's total assets.
The Select International Equity Fund may invest without limitation in foreign
currency options. Each Fund's ability to engage in options and futures
strategies will depend on the availability of liquid markets in such
instruments. It is impossible to predict the amount of trading interest that may
exist in various types of options or futures contracts. Therefore, there is no
assurance that a Fund will be able to utilize these instruments effectively for
the purposes stated above.
Additionally, the Select International Equity Fund may invest in forward
currency contracts with the stated contract value of up to the value of the
Fund's assets which may expose the Fund to additional risks and transaction
costs.
Risks inherent in the use of futures, options and forward contracts
("derivative instruments") include (1) the risk that movements in interest
rates, securities prices and currency markets will not be accurately anticipated
and a Fund's total return could be adversely affected as a result; (2) imperfect
correlation, or even no correlation, between the price of derivative instruments
and movements in the prices of the securities, interest rates or currencies
being hedged; (3) the fact that skills and techniques needed to use these
strategies are different from those needed to select portfolio securities; (4)
the lack of assurance that a liquid secondary market will exist for any
particular instrument at any time and, as a result, contractual positions cannot
be closed out easily; (5) the possible loss of principal under certain
conditions; (6) the possible inability of a Fund to purchase or sell a portfolio
security at a time when it would otherwise be favorable to do so due to the need
for the Fund to maintain "cover" or set aside securities in connection with
hedging techniques; and (7) the risk of a loss if the counterparty to the
transaction does not perform as promised. These techniques may increase
volatility of a Fund and may involve a small investment of cash relative to the
magnitude of the risk assumed.
The Funds will purchase futures and options only on exchanges or boards of
trade when there appears to be an active secondary market, but there can be no
assurance that a liquid secondary market will exist for any future or option at
any particular time.
In connection with transactions in futures and related options, the Funds will
be required to deposit as "initial margin" an amount of cash and/or securities.
Thereafter, subsequent payments are made to and from the broker to reflect
changes in the value of the future contract.
22
- ---------------------------
Allmerica Investment Trust
<PAGE>
A more detailed explanation of futures, options, and other derivative
instruments, and the risks associated with them, is included in the SAI.
RESTRICTED SECURITIES (APPLICABLE TO ALL FUNDS)
The Funds also may purchase fixed-income securities that are not registered
under the 1933 Act ("restricted securities"), but can be offered and sold to
"qualified institutional buyers" under Rule 144A of the 1933 Act. However, each
Fund will not invest more than 15% (10% for the Money Market Fund) of its net
assets in restricted securities (and securities deemed to be illiquid) unless
the Board of Trustees determines, based upon a continuing review of the trading
markets for the specific restricted security, that such restricted securities
are liquid. The Board of Trustees has adopted guidelines and delegated to the
Manager the daily function of determining and monitoring liquidity of restricted
securities. The Board, however, will retain sufficient oversight and be
responsible ultimately for the determinations. Since it is not possible to
predict with assurance exactly how this market for restricted securities sold
and offered under Rule 144A will develop, the Board will monitor carefully a
Fund's investments in securities, focusing on such important factors, among
others, as valuation, liquidity and availability of information. This investment
practice could have the effect of increasing the level of illiquidity in a Fund
to the extent that qualified institutional buyers become for a time uninterested
in purchasing these restricted securities. As a result, a Fund might not be able
to sell these securities when its Sub-Adviser wishes to do so, or might have to
sell them at less than fair value. In addition, market quotations are less
readily available. Therefore, judgment at times may play a greater role in
valuing these securities than in the case of unrestricted securities.
INVESTMENTS IN MONEY MARKET SECURITIES (APPLICABLE TO ALL FUNDS)
Any Fund may hold at least a portion of its assets in cash equivalents or
money market instruments. There is always the risk that the issuer of a money
market instrument may be unable to make payment upon maturity.
The Money Market Fund may hold uninvested cash reserves pending investment
during temporary, defensive periods or if, in the opinion of the Sub-Adviser,
suitable securities are not available for investment. Securities in which the
Money Market Fund may invest may not earn as high a level of current income as
long-term, lower-quality securities which, however, generally have less
liquidity, greater market risk and more fluctuation in market value.
ASSET-BACKED SECURITIES (APPLICABLE TO GROWTH FUND, INVESTMENT GRADE INCOME
FUND, GOVERNMENT BOND FUND AND MONEY MARKET FUND)
The Funds may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, frequently a pool of assets similar to one
another. Assets generating such payments include instruments such as motor
vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed for certain
amounts and time periods by a letter of credit issued by a financial institution
unaffiliated with the issuer of the securities. The estimated life of an asset-
backed security varies with the prepayment experience of the underlying debt
instruments. The rate of such prepayments, and hence the life of the asset-
backed security, will be primarily a function of current market rates, although
other economic and demographic factors will be involved. Under certain interest
rate and prepayment rate scenarios, the Funds may fail to recoup fully their
investment in asset-backed securities. A Fund will not invest more than 20% of
its total assets in asset-backed securities.
MORTGAGE-BACKED SECURITIES (APPLICABLE TO THE INVESTMENT GRADE INCOME FUND AND
GOVERNMENT BOND FUND)
The Funds may invest in mortgage-backed securities which are debt obligations
secured by real estate loans and pools of loans on single family homes, multi-
family homes, mobile homes and, in some cases, commercial properties. The Funds
may acquire securities representing an interest in a pool of mortgage loans that
are issued or guaranteed by a U.S. government agency such as Ginnie Mae, Fannie
Mae and Freddie Mac.
Mortgage-backed securities are in most cases "pass-through" instruments
through which the holder receives a share of all interest and principal payments
from the mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yields of a particular issue of pass-
through certificates. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When the mortgage obligations are prepaid, the Funds reinvest the prepaid
amounts in securities, the yield of which reflects interest rates prevailing at
the time. Moreover, prepayment of mortgages that underlie securities purchased
at a premium could result in losses.
The Funds also may invest in multiple class securities issued by U.S.
government agencies and instrumentalities such as Fannie Mae, Freddie Mac and
Ginnie Mae, including guaranteed collateralized mortgage obligations ("CMOs")
and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates, when consistent with the Funds' investment
objective, policies and limitations.
23
---------------------------
Allmerica Investment Trust
<PAGE>
A CMO is a type of bond secured by an underlying pool of mortgages or mortgage
pass-through certificates that are structured to direct payment on underlying
collateral to different series or classes of obligations. A REMIC is a CMO that
qualifies for special tax treatment under the Internal Revenue Code and invests
in certain mortgages principally secured by interests in real property and other
permitted investments.
CMOs and guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by Fannie Mae, Freddie Mac and Ginnie Mae are types of multiple pass-
through securities. Investors may purchase beneficial interests in REMICs, which
are known as "regular" interests or "residual" interests. The Funds currently do
not intend to purchase residual interests in REMICs. The REMIC Certificates
represent beneficial ownership interests in a REMIC trust, generally consisting
of mortgage loans or Fannie Mae, Freddie Mac or Ginnie Mae guaranteed mortgage
pass-through certificates. The obligations of Fannie Mae or Freddie Mac under
their respective guaranty of the REMIC Certificates are obligations solely of
Fannie Mae or Freddie Mac, respectively.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are available otherwise.
For Freddie Mac REMIC Certificates, Freddie Mac guarantees the timely payment
of interest and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified residential mortgages or
participations therein purchased by Freddie Mac and placed in a PC pool. With
respect to principal payments on PCs, Freddie Mac generally guarantees ultimate
collection of all principal of the related mortgage loans without offset or
deduction. Freddie Mac also guarantees timely payment of principal on certain
PCs referred to as "Gold PCs."
Ginnie Mae REMIC Certificates guarantee the full and timely payment of
interest and principal on each class of securities (in accordance with the terms
of those classes). This Ginnie Mae guarantee is backed by the full faith and
credit of the United States.
REMIC Certificates issued by Fannie Mae, Freddie Mac and Ginnie Mae are
treated as U.S. government securities for purposes of investment policies. There
can be no assurance that the U.S. Government will continue to provide financial
support to Fannie Mae, Freddie Mac or Ginnie Mae in the future.
STRIPPED MORTGAGE-BACKED SECURITIES (APPLICABLE TO THE INVESTMENT GRADE INCOME
FUND AND GOVERNMENT BOND FUND)
The Funds may invest in stripped mortgage-backed securities ("SMBS"). SMBS are
derivative multiclass mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
SMBS usually are structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. One type of SMBS will have one class receiving some of the interest and
most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In some cases,
one class will receive all of the interest (the interest-only or "IO" class)
while the other class will receive all of the principal (the principal-only or
"PO" class). The yield to maturity on an IO class is extremely sensitive to the
rate of principal payments (including prepayments on the related underlying
mortgage assets), and a rapid rate of principal payments may have a material,
adverse effect on a portfolio yield to maturity from these securities. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Funds may fail to recoup fully their initial investment in these
securities even if the security is in one of the highest rating categories.
Certain SMBS may be deemed "illiquid" and subject to a Fund's limitations on
investment in illiquid securities. The market value of the PO class generally is
unusually volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest from mortgage assets
generally are higher than prevailing market yields on other mortgage-backed
securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be recouped fully. The Sub-
Adviser will seek to manage these risks (and potential benefits) by investing in
a variety of such securities and by using certain hedging techniques.
HEDGING TECHNIQUES AND INVESTMENT PRACTICES (APPLICABLE TO THE SELECT
INTERNATIONAL EQUITY FUND)
The Select International Equity Fund may employ certain strategies in order to
manage exchange rate risks. For example, the Fund may hedge some or all of its
investments denominated in a foreign currency against a decline in the value of
that currency. The Fund may enter into contracts to sell that foreign currency
for U.S. dollars (not exceeding the value of the Fund's assets denominated in or
exposed to that currency) or by participating in options on futures contracts
with respect to such currency ("position hedge"). The Fund also could hedge that
position by selling a second currency that is expected to perform similarly to
the currency in which portfolio investments are denominated for U.S. dollars
("proxy hedge"). The Fund also may enter into a forward contract to sell the
currency in
24
- ---------------------------
Allmerica Investment Trust
<PAGE>
which the security is denominated for a second currency that is expected to
perform better relative to the U.S. dollar if their Sub-Adviser believes there
is a reasonable degree of correlation between movements in the two currencies
("cross-hedge"). As an operational policy, the Fund will not commit more than
10% of its assets to the consummation of cross-hedge contracts and either will
cover currency hedging transactions with liquid portfolio securities denominated
in or whose value is tied to the applicable currency or segregate liquid assets
in the amount of such commitments. In addition, when the Fund anticipates
repurchasing securities denominated in a particular currency, the Fund may enter
into a forward contract to purchase such currency in exchange for the dollar or
another currency ("anticipatory hedge").
These strategies minimize the effect of currency appreciation as well as
depreciation, but do not protect against a decline in the underlying value of
the hedged security. In addition, such strategies may reduce or eliminate the
opportunity to profit from increases in the value of the original currency and
may have an adverse impact on a Fund's performance if its Sub-Adviser's
projection of future exchange rates is inaccurate.
STAND-BY COMMITMENTS (APPLICABLE TO INVESTMENT GRADE INCOME FUND, GOVERNMENT
BOND FUND AND MONEY MARKET FUND)
Under a stand-by commitment, a dealer agrees to purchase from the Fund, at the
Fund's option, specified securities at a specified price. Stand-by commitments
are exercisable by the Fund at any time before the maturity of the underlying
security, and may be sold, transferred or assigned by the Fund only with respect
to the underlying instruments.
Although stand-by commitments are often available without the payment of any
direct or indirect consideration, if necessary or advisable, the Fund may pay
for a stand-by commitment either separately in cash or by paying a higher price
for securities which are acquired subject to the commitment.
Where the Fund pays any consideration directly or indirectly for a stand-by
commitment, its cost will be reflected as unrealized depreciation for the period
during which the commitment is held by the Fund.
The Fund will enter into stand-by commitments only with banks and broker-
dealers which present minimal credit risks. In evaluating the creditworthiness
of the issuer of a stand-by commitment, the Sub-Adviser will review periodically
the issuer's assets, liabilities, contingent claims and other relevant financial
information.
The Fund will acquire stand-by commitments solely to facilitate liquidity and
does not intend to exercise its rights thereunder for trading purposes. Stand-
by commitments will be valued at zero in determining the Fund's net asset
value.
25
---------------------------
Allmerica Investment Trust
<PAGE>
APPENDIX
Descriptions of Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Ratings Service, a division of McGraw-Hill Companies, Inc. ("S&P")
commercial paper and bond ratings:
COMMERCIAL PAPER RATINGS
MOODY'S EMPLOYS THREE DESIGNATIONS, ALL JUDGED TO BE INVESTMENT GRADE, TO
INDICATE THE RELATIVE REPAYMENT CAPACITY OF RATED ISSUERS. THE TWO HIGHEST
DESIGNATIONS ARE AS FOLLOWS:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity normally will be evidenced by the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This normally
will be evidenced by many of the characteristics cited above, but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be subject more
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
S&P COMMERCIAL PAPER RATINGS ARE GRADED INTO SEVERAL CATEGORIES, RANGING FROM
"A-1" FOR THE HIGHEST QUALITY OBLIGATIONS TO "D" FOR THE LOWEST. THE TWO HIGHEST
RATING CATEGORIES ARE DESCRIBED AS FOLLOWS:
A-1 - This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MUNICIPAL OBLIGATIONS
Moody's ratings for state and municipal and other short-term obligations will
be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in the short-term borrowing, while various factors of the first
importance in long-term borrowing risk are of lesser importance in the long run.
Symbols used will be as follows:
MIG-1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG-2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
A short-term rating also may be assigned on an issue having a demand feature.
Such ratings will be designated as VMIG to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event that demand is not met.
VMIG-1 and VMIG-2 ratings carry the same definitions as MIG-1 and MIG-2,
respectively.
26
- ---------------------------
Allmerica Investment Trust
<PAGE>
DESCRIPTION OF MOODY'S BOND RATINGS
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what generally are known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present that suggest a susceptibility to impairment some time in the
future.
Baa - Bonds that are rated Baa are considered to be medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.
Those bonds within the Aa, A, Baa, Ba, and B categories that Moody's believes
possess the strongest credit attributes within those categories are designated
by the symbols Aa1, A1, Baa1, Ba1, and B1.
Description of S&P's Debt Ratings
AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC, or C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and
C the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
Plus (+) or (-): The ratings from AA to CCC may be modified by the addition of
a plus or minus sign to show relative standing within the major categories.
27
---------------------------
Allmerica Investment Trust
<PAGE>
ALLMERICA INVESTMENT TRUST
440 Lincoln Street
Worcester, Massachusetts 01653
(508) 855-1000
Allmerica Investment Trust (the "Trust") is a professionally managed, open-end
investment company designed to provide the underlying investment vehicles for
insurance related accounts. The eight separate portfolios of the Trust
(collectively, the "Funds," and individually, the "Fund") currently offered by
this Prospectus are as follows:
SELECT EMERGING MARKETS FUND
SELECT AGGRESSIVE GROWTH FUND
SELECT CAPITAL APPRECIATION FUND
SELECT VALUE OPPORTUNITY FUND
SELECT INTERNATIONAL EQUITY FUND
SELECT GROWTH FUND
SELECT STRATEGIC GROWTH FUND
SELECT INCOME FUND
Currently, shares of each Fund may be purchased only by separate accounts
("Separate Accounts") established by First Allmerica Financial Life Insurance
Company ("First Allmerica") for the purpose of funding group annuity contracts
issued by First Allmerica. A particular Fund may not be available under the
variable annuity or variable life insurance policy which you have chosen. The
Prospectus of the specific insurance product you have chosen will indicate which
Funds are available and should be read in conjunction with this Prospectus.
Inclusion in this Prospectus of a Fund which is not available under your policy
is not to be considered a solicitation.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor ought to know before investing. Certain additional
information is contained in the Statement of Additional Information dated May 1,
1998 (the "SAI"), which has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference and is available upon
request without charge from the Trust, 440 Lincoln Street, Worcester, MA 01653,
(508) 855-1000.
Investment in the Funds is neither insured nor guaranteed by the U.S.
Government.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY
INSTITUTION. SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC") OR ANY OTHER GOVERNMENTAL AGENCY, AND ARE SUBJECT TO VARIOUS RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DATED MAY 1, 1998
---------------------------
Allmerica Investment Trust
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS................................................. 3
HOW ARE THE FUNDS MANAGED?........................................... 8
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?..................... 9
Select Emerging Markets Fund....................................... 9
Select Aggressive Growth Fund...................................... 10
Select Capital Appreciation Fund................................... 11
Select Value Opportunity Fund...................................... 12
Select International Equity Fund................................... 13
Select Growth Fund................................................. 13
Select Strategic Growth Fund....................................... 14
Select Income Fund................................................. 15
MANAGEMENT FEES AND EXPENSES......................................... 16
FUND MANAGER INFORMATION............................................. 19
HOW ARE SHARES VALUED?............................................... 21
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS.............................. 21
SALE AND REDEMPTION OF SHARES........................................ 21
HOW IS PERFORMANCE DETERMINED?....................................... 22
ORGANIZATION AND CAPITALIZATION OF THE TRUST......................... 22
INVESTMENT RESTRICTIONS.............................................. 23
CERTAIN INVESTMENT STRATEGIES AND POLICIES........................... 23
APPENDIX............................................................. 30
</TABLE>
2
- ---------------------------
Allmerica Investment Trust
<PAGE>
FINANCIAL HIGHLIGHTS
The following Financial Highlights have been audited by Price Waterhouse LLP,
independent accountants of the Trust. This information should be read in
conjunction with the financial statements and notes thereto which appear in the
Policyowner's annual report for the year ended December 31, 1997 ("Annual
Report"), and which are incorporated by reference in the Trust's SAI. Further
information about the performance of the Funds is contained in the Annual Report
which may be obtained without charge from the Trust, 440 Lincoln Street,
Worcester, MA 01653, (508) 855-1000.
3
---------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED
VALUE NET GAIN (LOSS) TOTAL FROM
YEAR ENDED BEGINNING INVESTMENT ON INVESTMENT
DECEMBER 31, OF YEAR INCOME/(2)/ INVESTMENTS OPERATIONS
- ------------ ------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Select Aggressive
Growth Fund/(1)/
1997 $ 2.037 $(0.009) $ 0.387 $ 0.378
1996 1.848 (0.009) 0.351 0.342
1995 1.397 (0.001) 0.452 0.451
1994 1.431 (0.002) (0.032) (0.034)
1993 1.197 0.001 0.234 0.235
1992 1.000 0.001 0.197 0.198
Select Capital
Appreciation Fund/(1)/
1997 1.485 (0.005) 0.218 0.213
1996 1.369 (0.003) 0.124 0.121
1995 1.000 (0.001) 0.397 0.396
Select Value
Opportunity Fund/(1)/
1997 1.511 0.010 0.364 0.374
1996 1.238 0.011 0.342 0.353
1995 1.089 0.009 0.183 0.192
1994 1.170 0.005 (0.081) (0.076)
1993 1.000 0.002 0.176 0.178
Select International
Equity Fund/(1)/
1997 1.356 0.015 0.049 0.064
1996 1.136 0.011 0.238 0.249
1995 0.963 0.013 0.176 0.189
1994 1.000 0.003 (0.038) (0.035)
Select Growth Fund/(1)/
1997 1.430 0.006 0.480 0.486
1996 1.369 0.005 0.297 0.302
1995 1.099 -- 0.270 0.270
1994 1.119 0.003 (0.020) (0.017)
1993 1.111 0.001 0.008 0.009
1992 1.000 0.001 0.111 0.112
<CAPTION>
LESS DISTRIBUTIONS
--------------------------------------------------------
NET
DISTRIBUTIONS INCREASE
DIVIDENDS FROM NET (DECREASE)
FROM NET REALIZED DISTRIBUTIONS IN
YEAR ENDED INVESTMENT CAPITAL IN RETURN OF TOTAL NET ASSET
DECEMBER 31, INCOME GAINS EXCESS CAPITAL DISTRIBUTIONS VALUE
- ------------ ------ ----- ------ ------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Select Aggressive
Growth Fund/(1)/
1997 $ -- $(0.182) $(0.008)/(3)/ $ -- $(0.190) $ 0.188
1996 -- (0.153) -- -- (0.153) 0.189
1995 -- -- -- -- -- 0.451
1994 -- -- -- -- -- (0.034)
1993 (0.001) -- -- -- (0.001) 0.234
1992 (0.001) -- -- -- (0.001) 0.197
Select Capital
Appreciation Fund/(1)/
1997 -- -- -- -- -- 0.213
1996 -- (0.005) -- -- (0.005) 0.116
1995 -- (0.027) -- -- (0.027) 0.369
Select Value
Opportunity Fund/(1)/
1997 (0.010) (0.249) -- -- (0.259) 0.115
1996 (0.011) (0.069) -- -- (0.080) 0.273
1995 (0.009) (0.033) (0.001)/(3)/ -- (0.043) 0.149
1994 (0.005) -- -- -- (0.005) (0.081)
1993 (0.002) (0.006) -- -- (0.008) 0.170
Select International
Equity Fund/(1)/
1997 (0.019) (0.046) (0.014)/(4)/ -- (0.079) (0.015)
1996 (0.012) (0.003) (0.014)/(4)/ -- (0.029) 0.220
1995 (0.011) (0.005) -- -- (0.016) 0.173
1994 (0.001) (0.001) -- -- (0.002) (0.037)
Select Growth Fund/(1)/
1997 (0.006) (0.099) -- -- (0.105) 0.381
1996 (0.005) (0.236) -- -- (0.241) 0.061
1995 -- -- -- -- -- 0.270
1994 (0.003) -- -- -- (0.003) (0.020)
1993 (0.001) -- -- -- (0.001) 0.008
1992 (0.001) -- -- -- (0.001) 0.111
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
(A) Including reimbursements, waivers, and reductions.
(B) Excluding reductions. Certain Portfolios have entered into varying
arrangements with brokers who reduced a portion of the Portfolio's expenses.
(C) Excluding reimbursements and reductions.
(D) For fiscal years beginning on or after September 1, 1995, a Portfolio is
required to disclose its average commission rate per share for trades for
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
(1) The Select Aggressive Growth Fund commenced operations on August 21, 1992.
The Select Capital Appreciation Fund commenced operations on April 28, 1995.
The Select Value Opportunity Fund (formerly the Small-Mid Cap Value Fund)
commenced operations on April 30, 1993 and changed investment sub-adviser on
January 1, 1997. The Select International Equity Fund commenced operations
on May 2, 1994. The Select Growth Fund commenced operations on August
21,1992 and changed investment sub-adviser on July 1, 1996.
(2) Net investment income per share before reimbursement of fees by the
investment adviser or reductions were $(0.010) in 1997, $0.000 in 1993 and
$(0.001) in 1992 for Select Aggressive Growth Fund; $(0.001) in 1995 for
Select Capital Appreciation Fund; $0.009 in 1997, $0.010 in 1996, $0.005 in
1994 and $(0.001) in 1993 for Select Value Opportunity Fund; $0.015 in 1997,
$0.011 in 1996 and $0.002 in 1994 for Select International Equity Fund; and
$0.006 in 1997, $0.005 in 1996, $0.001 in 1993 and $0.000 in 1992 for Select
Growth Fund.
(3) Distributions in excess of net realized capital gains.
(4) Distributions in excess of net investment income.
4
- ---------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
---------------------------------------------------------------
NET ASSET NET ASSETS
VALUE END OF NET PORTFOLIO AVERAGE
END OF TOTAL YEAR INVESTMENT OPERATING EXPENSES MANAGEMENT FEES TURNOVER COMMISSIONS
YEAR RETURN (000'S) INCOME (A) (B) (C) GROSS NET RATE RATE/(D)/
--- ------ ----- ------ --- --- --- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2.225 18.71% $604,123 (0.45)% 0.99% 1.04% 1.04% 0.95% 0.95% 95% $0.0617
2.037 18.55% 407,442 (0.53)% 1.08% 1.08% 1.08% 1.00% 1.00% 113% 0.0597
1.848 32.28% 254,872 (0.07)% 1.09% -- 1.09% 1.00% 1.00% 104% --
1.397 (2.31)% 136,573 (0.21)% 1.16% -- 1.16% 1.00% 1.00% 100% --
1.431 19.51% 66,251 0.10% 1.19% -- 1.23% 1.00% 0.96% 76% --
1.197 19.85%** 9,270 0.34%* 1.35%* -- 1.88%* N/A N/A 33% --
1.698 14.28% 240,526 (0.38)% 1.13% 1.13% 1.13% 0.98% 0.98% 133% 0.0444
1.485 8.80% 142,680 (0.32)% 1.13% 1.13% 1.13% 1.00% 1.00% 98% 0.0414
1.369 39.56%** 41,376 (0.25)%* 1.35%* -- 1.42%* 1.00%* 0.93%* 95% --
1.626 24.85% 202,139 0.73% 0.98% 1.04% 1.06% 0.92% 0.90% 110% 0.0587
1.511 28.53% 113,969 0.91% 0.95% 0.97% 0.97% 0.85% 0.85% 20% 0.0497
1.238 17.60% 64,575 0.86% 1.01% -- 1.01% 0.85% 0.85% 17% --
1.089 (6.51)% 41,342 0.64% 1.08% -- 1.09% 0.85% 0.84% 4% --
1.170 17.74%** 12,731 0.52%* 1.22%* -- 2.03%* 0.85%* 0.04%* 8% --
1.341 4.65% 397,915 1.17% 1.15% 1.17% 1.17% 0.97% 0.97% 20% 0.0229
1.356 21.94% 246,877 1.22% 1.20% 1.23% 1.23% 1.00% 1.00% 18% 0.0248
1.136 19.63% 104,312 1.68% 1.24% -- 1.24% 1.00% 1.00% 24% --
0.963 (3.49)%** 40,498 0.87%* 1.50%* -- 1.78%* 1.00%* 0.72%* 19% --
1.811 34.06% 470,356 0.42% 0.91% 0.93% 0.93% 0.85% 0.85% 75% 0.0470
1.430 22.02% 228,551 0.38% 0.92% 0.93% 0.93% 0.85% 0.85% 159% 0.0457
1.369 24.59% 143,125 0.02% 0.97% -- 0.97% 0.85% 0.85% 51% --
1.099 (1.49)% 88,263 0.37% 1.03% -- 1.03% 0.85% 0.85% 55% --
1.119 0.84% 53,854 0.15% 1.05% -- 1.08% 0.85% 0.82% 65% --
1.111 11.25%** 9,308 0.40%* 1.20%* -- 1.72%* N/A N/A 3% --
</TABLE>
5
---------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED
VALUE NET GAIN (LOSS) TOTAL FROM
YEAR ENDED BEGINNING INVESTMENT ON INVESTMENT
DECEMBER 31, OF YEAR INCOME/(2)/ INVESTMENTS OPERATIONS
- ------------ ------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Select Income Fund/(1)/
1997 $0.995 $0.060 $ 0.028 $ 0.088
1996 1.024 0.061 (0.029) 0.032
1995 0.930 0.060 0.095 0.155
1994 1.035 0.055 (0.105) (0.050)
1993 0.988 0.052 0.055 0.107
1992 1.000 0.018 (0.012) 0.006
<CAPTION>
LESS DISTRIBUTIONS
---------------------------------------------------------------
NET
DISTRIBUTIONS INCREASE
DIVIDENDS FROM NET (DECREASE)
FROM NET REALIZED DISTRIBUTIONS IN
YEAR ENDED INVESTMENT CAPITAL IN RETURN OF TOTAL NET ASSET
DECEMBER 31, INCOME GAINS EXCESS CAPITAL DISTRIBUTIONS VALUE
- ------------ ------ ----- ------ ------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Select Income Fund/(1)/
1997 $(0.061) $ -- $ -- $ -- $ (0.061) $ 0.027
1996 (0.061) -- -- -- (0.061) (0.029)
1995 (0.060) -- (0.001)/(3)/ -- (0.061) 0.094
1994 (0.055) -- -- -- (0.055) (0.105)
1993 (0.052) (0.008) -- -- (0.060) 0.047
1992 (0.018) -- -- -- (0.018) (0.012)
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
(A) Including reimbursements, waivers, and reductions.
(B) Excluding reductions. Certain Portfolios have entered into varying
arrangements with brokers who reduced a portion of the Portfolio's expenses.
(C) Excluding reimbursements and reductions.
(D) For fiscal years beginning on or after September 1, 1995, a Portfolio is
required to disclose its average commission rate per share for trades for
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
(1) The Select Income Fund commenced operations on August 21, 1992.
(2) Net investment income per share before reimbursement of fees by the
investment adviser or reductions were $0.060 in 1995, $0.055 in 1994, $0.050
in 1993, and $0.015 in 1992 for Select Income Fund.
(3) Distributions in excess of net investment income.
6
- ---------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------------------------------------
NET ASSET NET ASSETS
VALUE END OF NET PORTFOLIO AVERAGE
END OF TOTAL YEAR INVESTMENT OPERATING EXPENSES MANAGEMENT FEES TURNOVER COMMISSIONS
YEAR RETURN (000'S) INCOME (A) (B) (C) GROSS NET RATE RATE/(D)/
---- ------ ----- ------ --- --- --- ----- --- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1.022 9.17% $104,253 6.12% 0.72% 0.72% 0.72% 0.59% 0.59% 79% $ --
0.995 3.32% 77,498 6.29% 0.74% 0.74% 0.74% 0.60% 0.60% 108% --
1.024 16.96% 60,368 6.24% 0.79% -- 0.80% 0.60% 0.59% 131% --
0.930 (4.82)% 40,784 6.07% 0.83% -- 0.85% 0.60% 0.58% 105% --
1.035 10.95% 25,302 5.91% 0.91% -- 1.08% 0.60% 0.43% 171% --
0.988 0.62%** 5,380 5.38%* 1.00%* -- 1.67%* N/A N/A 119% --
</TABLE>
7
---------------------------
Allmerica Investment Trust
<PAGE>
HOW ARE THE FUNDS MANAGED?
The overall responsibility for the supervision of the affairs of the Trust
vests in the Board of Trustees of the Trust which meets on a quarterly basis.
Allmerica Financial Investment Management Services, Inc. (the "Manager") is
responsible for the management of the Trust's day-to-day business affairs and
has general responsibility for the management of the investments of the Funds.
The Manager, at its expense, has contracted with certain Sub-Advisers to manage
the investments of the Funds subject to the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act").
The Manager is an indirect, wholly-owned subsidiary of Allmerica Financial
Corporation ("AFC"), a Delaware holding company for a group of affiliated
companies, the largest of which is First Allmerica, a life insurance company
organized in Massachusetts in 1844. The Manager, AFC and First Allmerica are
located at 440 Lincoln Street, Worcester, Massachusetts 01653. The Manager
succeeded Allmerica Investment Management Company, Inc. ("AIMCO") as manager of
the Trust on April 16, 1998. As part of a reorganization, AIMCO transferred to
the Manager that portion of its business relating to the provision of investment
advisory services exclusively to investment companies registered under the 1940
Act such as the Trust while AIMCO retained its financial planning business. The
same personnel and procedures previously employed by AIMCO to service the Trust
will be used by the Manager. The Manager also serves as investment manager of
the Palladian Trust, another open-end investment management company.
The Manager has entered into Sub-Adviser Agreements for the management of the
investments of each of the Funds. Each Sub-Adviser, which has been selected on
the basis of various factors, including management experience, investment
techniques, and staffing, is authorized to engage in portfolio transactions on
behalf of the applicable Fund subject to such general or specific instructions
as may be given by the Trustees and/or the Manager. The terms of a Sub-Adviser
Agreement cannot be changed materially without the approval of a majority
interest of the shareholders of the affected Fund. The Trust and Manager have
filed an application with the SEC for an order of exemption that would permit
the Manager to enter into and materially amend sub-advisory agreements with non-
affiliated Sub-Advisers without obtaining shareholder approval. If the requested
relief is granted by the SEC, the Manager will have the ability, subject to
approval of the Trustees, to hire and terminate Sub-Advisers to the Funds and to
change materially the terms of the Sub-Advisory Agreements, including the
compensation paid to the Sub-Advisers, without the approval of the shareholders
of the Funds. The Sub-Advisers have been selected by the Manager and the
Trustees in consultation with BARRA RogersCasey, Inc. ("BARRA RogersCasey"), a
pension consulting firm. BARRA RogersCasey is wholly controlled by BARRA, Inc.
The cost of such consultation is borne by the Manager.
BARRA RogersCasey provides consulting services to pension plans representing
hundreds of billions of dollars in total assets and, in its consulting capacity,
monitors the investment performance of over 1,000 investment advisers. As a
consultant, BARRA RogersCasey has no decision-making authority with respect to
the Funds, and is not responsible for advice provided by the Manager or the Sub-
Advisers. From time to time, specific clients of BARRA RogersCasey and the Sub-
Advisers will be named in sales materials.
Ongoing performance of the Sub-Advisers is reviewed and evaluated by a
committee of the Board of Trustees, which also includes members who are officers
of First Allmerica or its affiliates, in consultation with BARRA RogersCasey.
Historical performance data for all of the Funds is set forth under "Financial
Highlights." The Manager is responsible for the payment of all fees to the Sub-
Advisers. The Sub-Advisers for each of the Funds are as follows:
<TABLE>
<S> <C>
Select Emerging Markets Fund Schroder Capital Management International, Inc.
Select Aggressive Growth Fund Nicholas-Applegate Capital Management, L.P.
Select Capital Appreciation Fund T. Rowe Price Associates, Inc. *
Select Value Opportunity Fund Cramer Rosenthal McGlynn, LLC**
Select International Equity Fund Bank of Ireland Asset Management (U.S.) Limited
Select Growth Fund Putnam Investment Management, Inc.
Select Strategic Growth Fund Cambiar Investors, Inc.
Select Income Fund Standish, Ayer & Wood, Inc.
</TABLE>
- -------------------------------
* T. Rowe Price Associates, Inc. assumed Sub-Adviser responsibilities from
Janus Capital Corporation on April 1, 1998. The Sub-Adviser Agreement between T.
Rowe Price Associates, Inc. and the Manager is subject to shareholder approval
at a meeting scheduled for June 3, 1998.
** Cramer Rosenthal McGlynn, LLC assumed Sub-Adviser responsibilities from CRM
Advisors, LLC on January 2, 1998.
8
- ---------------------------
Allmerica Investment Trust
<PAGE>
For a sample listing of certain of the Sub-Advisers' clients, see "Investment
Management and Other Services" in the SAI. For more information on each of the
Sub-Advisers, see "What Are the Investment Objectives and Policies?" and "Fund
Manager Information."
The Manager also has entered into an Administrative Services Agreement with
First Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-
owned subsidiary of First Data Corporation, whereby Investor Services Group
performs administrative services for each of the Funds and is entitled to
receive an administrative fee and certain out-of-pocket expenses. The Manager is
responsible for the payment of the administrative fee to Investor Services
Group.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
Each Fund has a separate investment objective and policies designed to meet
different investment and financial needs, as described below. There is no
assurance that a Fund will achieve its investment objective.
A Fund's investment objective and investment policies are not fundamental and
may be changed without shareholder approval.
SELECT EMERGING MARKETS FUND
Investment Objective: The Select Emerging Markets Fund seeks long-term growth of
capital by investing in the world's emerging markets.
Sub-Adviser: Schroder Capital Management International Inc. ("SCMI") serves as
Sub-Adviser to the Select Emerging Markets Fund. SCMI, a wholly-owned U.S.
subsidiary of Schroders U.S. Holdings, Inc., the indirect wholly-owned U.S.
subsidiary of Schroders plc, was organized in 1980 as an investment adviser and
had more than $25 billion in assets under management as of December 31, 1997.
SCMI provides global equity and fixed income management services to North
American state and local governments, corporations, endowments, foundations,
investment companies and family trusts. Its main U.S. offices are located at 787
Seventh Avenue, New York, New York 10019.
Investment Policies: Under normal circumstances, the Fund invests at least 65%
of its total assets in equity securities of companies that are domiciled or
primarily doing business in developing countries with emerging markets, which
include those in the Morgan Stanley Capital International Emerging Markets Free
Index ("MSCI EMF"). Investments are not limited to one or more specific regions
because the Sub-Adviser believes that emerging market investment opportunities
can be found throughout the world. The Fund ordinarily maintains investments in
at least five developing countries.
A company is considered to be domiciled in a developing country if it is
organized under the laws of, or has a principal office in, that country. A
company is considered as primarily doing business in a developing country if (i)
the company derives at least 50% of its gross revenues or profits from either
goods or services produced or sold in the developing country or (ii) at least
50% of the company's assets are situated in the developing country.
The Fund may invest in the following types of equity securities: common stock,
preferred stock, securities convertible into common stock, rights and warrants
to acquire such securities and substantially similar forms of equity with
comparable risk characteristics.
The Fund invests in those emerging markets that the Sub-Adviser believes have
strongly developing economies and potential for long-term future growth. In
selecting securities for investment in the Fund, the Sub-Adviser assesses the
general attractiveness of specific countries based on an analysis of various
factors, including political stability, financial practices, economic prospects,
interest rates and inflation, general market valuations and potential currency
movements. Investments are made in those companies that the Sub-Adviser believes
are best positioned and managed to achieve above-average growth.
The Fund may also invest up to 35% of its total assets in debt securities of
government or corporate issuers in emerging markets, equity and debt securities
of issuers in developed countries, including the United States, and cash and
money market instruments. Some or all of the debt securities held by the Fund
may be rated below investment grade. These securities, commonly known as "junk
bonds", involve significant risks as discussed under "Certain Investment
Strategies and Policies-High Yield Securities." Emerging market debt securities
often are rated below investment grade or not rated by U.S. rating agencies.
Pending investment of proceeds from new sales of Fund shares or to meet daily
cash needs, the Fund may hold cash and money market instruments.
9
---------------------------
Allmerica Investment Trust
<PAGE>
The Sub-Adviser may employ a temporary defensive strategy if deemed by it to
be appropriate due to economic or political conditions in emerging markets. When
using a defensive strategy, the Fund may invest up to 100% of its assets in
cash, high-quality debt securities or money market instruments of U.S. or
foreign issuers. In addition, most or all of its investments may be made in the
United States and in U.S. dollars for temporary defensive purposes.
The Fund may invest up to 15% of its net assets in securities which are
illiquid and may engage in the options and futures strategies and currency
hedging techniques described under "Certain Investment Strategies and Policies-
Options and Futures Transactions" and "Hedging Techniques and Investment
Practices."
Investing in the Fund entails a substantial degree of risk. Investors are
strongly advised to consider carefully the special risks involved in investing
in emerging markets, which are in addition to the usual risks of investing in
developed countries around the world. See "Certain Investment Strategies and
Policies-Foreign Securities." The portfolio turnover rate for the Fund may vary
greatly from year to year.
SELECT AGGRESSIVE GROWTH FUND
Investment Objective: The Select Aggressive Growth Fund seeks above-average
capital appreciation by investing primarily in common stocks of companies which
are believed to have significant potential for capital appreciation.
Sub-Adviser: Nicholas-Applegate Capital Management, L.P. ("NACM") serves as Sub-
Adviser to the Select Aggressive Growth Fund. NACM is an investment manager
supervising accounts with approximately $30 billion in total assets as of
December 31, 1997. NACM's clients are primarily major corporate employee benefit
funds, public employee retirement plans, foundations and endowment funds,
investment companies and individuals. Founded in 1984, NACM is located at 600
West Broadway, Suite 2900, San Diego, California 92101.
Investment Policies: Under normal circumstances, at least 65% of the assets of
the Select Aggressive Growth Fund will be invested in equity securities,
consisting of common stocks, securities convertible into common stocks
(including bonds, notes and preferred stocks), and warrants. The Fund's assets
also may be invested in other debt securities and preferred stocks when such
securities are believed appropriate in light of the Fund's investment objective
and market conditions.
The selection of securities is made solely on the basis of their potential for
capital appreciation. Dividend and interest income from portfolio securities, if
any, is incidental to the Fund's investment objective. While investments may be
made in well-known and established companies, a significant portion of the
Fund's investments is expected to be in securities of newer and relatively
unseasoned companies or companies which represent new or changing industries.
At any given point, a substantial portion of the Fund's equity investments may
be in securities which are not listed for trading on national securities
exchanges and which, although publicly traded, may be less liquid than
securities issued by larger, more seasoned companies which trade on national
securities exchanges. Up to 15% of the Fund's net assets may be invested in
securities which are illiquid.
Securities of newer companies may be closely held with only a small portion of
their outstanding securities owned by the general public. Newer companies may
have relatively small revenue, lack depth of management and have a small share
of the market for their products or services; thus, they may be more vulnerable
to changes in economic conditions, market fluctuations and other factors
affecting the profitability or marketability of companies. Due to these and
other factors, the price movement of the securities held by the Fund can be
expected to be more volatile than is the case for the market as a whole, and the
net asset value of a share of the Fund may fluctuate significantly.
Consequently, the Fund should not be considered suitable for investors who are
unable or unwilling to assume the risk of loss inherent in an aggressive growth
portfolio, nor should investment in the Fund be considered a balanced or
complete investment program.
When NACM determines that market conditions warrant a temporary defensive
position, the Fund may invest without limitation in high-grade, fixed-income
securities or U.S. Government securities or hold assets in cash or cash
equivalents. For hedging purposes, the Fund may engage in the options and
futures strategies described under "Certain Investment Strategies and
Policies."
The Fund also may invest up to 25% of its assets in foreign securities (not
including its investments in American Depositary Receipts ("ADRs")).
10
- ---------------------------
Allmerica Investment Trust
<PAGE>
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 95%. The portfolio turnover rate was the result of the Sub-
Adviser's investment process which typically results in above-average portfolio
turnover. Portfolio turnover rates may vary greatly from year to year. A high
portfolio turnover rate will likely result in greater brokerage costs to the
Fund.
SELECT CAPITAL APPRECIATION FUND
Investment Objective: The Select Capital Appreciation Fund seeks long-term
growth of capital in a manner consistent with the preservation of capital.
Realization of income is not a significant investment consideration and any
income realized on the Fund's investments will be incidental to its primary
objective.
Sub-Adviser: T. Rowe Price Associates, Inc. ("T. Rowe Price") serves as Sub-
Adviser to the Select Capital Appreciation Fund. Founded in 1937, T. Rowe Price
is a publicly held company located at 100 East Pratt Street, Baltimore, Maryland
21202. As of December 31, 1997, T. Rowe Price and its affiliates managed assets
totaling approximately $125 billion for more than five million individual and
institutional investor accounts. T. Rowe Price International Series, Inc., an
investment company managed by a T. Rowe Price affiliate, is currently used as an
investment vehicle for certain insurance products sponsored by First Allmerica
and Allmerica Financial Life. In addition, the same T. Rowe Price affiliate
currently serves as investment adviser to a corporate investment account of
AFC.
Investment Policies: The Fund invests in common stocks when the Sub-Adviser
believes that the relevant market environment favors profitable investing in
those securities. The Fund pursues its objective normally by investing at least
50% of its equity assets in securities issued by medium-sized companies. Medium-
sized companies are those whose market capitalizations fall within the range of
companies in the S&P MidCap 400 Index (the "MidCap Index"). Companies whose
capitalization falls outside this range after the Fund's initial purchase
continue to be considered medium-sized companies for the purpose of this policy.
As of December 31, 1997, the MidCap Index included companies with
capitalizations between approximately $200 million to $12 billion. The range of
the MidCap Index is expected to change on a regular basis. Subject to the above
policy, the Fund also may invest in smaller or larger issuers. Common stock
investments are selected in industries and companies that the Sub-Adviser
believes are experiencing favorable demand for their products and services and
which operate in a favorable competitive environment and regulatory climate. The
Sub-Adviser's analysis and selection process focuses on stocks with earnings
growth potential that may not be recognized by the market. Such securities are
selected solely for their capital growth potential; investment income is not a
consideration. Medium-sized companies may suffer more significant losses as well
as realize more substantial growth than larger issuers; thus, investments in
such companies tend to be more volatile and somewhat speculative.
The selection criteria for domestic issuers apply equally to stocks of foreign
issuers. In addition, factors such as expected levels of inflation, government
policies influencing business conditions, the outlook for currency relationships
and prospects for relative economic growth among countries, regions or
geographic areas may warrant greater consideration in selecting foreign stocks.
The Fund may invest without limitation in foreign securities. The Fund may
invest directly in foreign securities denominated in foreign currency and not
publicly traded in the United States. The Fund also may purchase foreign
securities through ADRs, European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs"), and other types of receipts or shares evidencing
ownership of the underlying foreign securities. In addition, the Fund may invest
indirectly in foreign securities through foreign investment funds or trusts
(including passive foreign investment companies). Certain state insurance
regulations may impose additional restrictions on the Fund's holdings of foreign
securities. Investments in foreign securities carry additional risks not present
in domestic securities. See "Certain Investment Strategies and Policies -
Foreign Securities."
Although the Fund normally invests primarily in common stocks, the Fund's cash
position may increase when the Sub-Adviser is unable to locate investment
opportunities with desirable risk/reward characteristics. The Fund also may
invest in preferred stocks, warrants, government securities, corporation bonds
and debentures, high-grade commercial papers, certificates of deposit, other
debt securities or repurchase agreements or reverse repurchase agreements when
the Sub-Adviser perceives an opportunity for capital growth from such securities
or so that the Fund may receive a return on its idle cash. The Fund also may
invest up to 35% of its assets in such lower-rated securities commonly known as
"junk bonds." Fixed income securities rated in the fourth highest grade by
Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Ratings Service,
a division of McGraw-Hill Companies, Inc. ("S&P") (Baa and BBB, respectively)
are investment grade but are considered to have some speculative
characteristics. Lower-rated securities or "junk bonds" (rated Ba/BB or lower)
involve the risks discussed under "Certain Investment Strategies and Policies-
High Yield Securities." When the Fund invests in such securities, investment
income will increase and may constitute a large portion of the return realized
by the Fund and the Fund probably will not participate in market advances or
declines to the extent that it would if it remained fully invested in common
stocks. Up to 15% of the Fund's net assets may be invested in securities which
are illiquid.
11
---------------------------
Allmerica Investment Trust
<PAGE>
The Fund may invest in "special situations" from time to time. A special
situation arises when, in the opinion of the Sub-Adviser, the securities of a
particular issuer will be recognized and appreciate in value due to a specific
development with respect to that issuer. Developments creating a special
situation might include, among others, a new product or process, a technological
breakthrough, a management change or other extraordinary corporate event, or
differences in market supply of and demand for the security. Investment in
special situations may carry an additional risk of loss in the event that the
anticipated development does not occur or does not attract the expected
attention.
For hedging purposes, the Fund may engage in options and futures strategies
and may utilize forward contracts, interest rate swaps and swap-related
products. See "Certain Investment Strategies and Policies." For the fiscal year
ended December 31, 1997, the portfolio turnover rate for the Fund was 133%. The
portfolio turnover rate was the result of the investment approach of Janus
Capital Corporation ("JCC"), the Fund's previous Sub-Adviser, which typically
resulted in above-average portfolio turnover as securities were sold when the
Sub-Adviser believed the reasons for their initial purchase were no longer valid
or when it believed that the sale of a security owned by the Fund and the
purchase of another security could enhance return. JCC was replaced by T. Rowe
Price as Sub-Adviser for the Fund effective April 1, 1998. Portfolio turnover
rates may vary greatly from year to year. A high portfolio turnover rate will
likely result in greater brokerage costs to the Fund.
SELECT VALUE OPPORTUNITY FUND (FORMERLY SMALL-MID CAP VALUE FUND)
Investment Objective: The Select Value Opportunity Fund seeks long-term growth
of capital by investing primarily in a diversified portfolio of common stocks of
small and mid-size companies, whose securities at the time of purchase are
considered by the Sub-Adviser to be undervalued.
Sub-Adviser: Cramer Rosenthal McGlynn, LLC ("CRM") serves as Sub-Adviser to the
Select Value Opportunity Fund. CRM provides advisory and sub-advisory services
to mutual funds with a total of over $500 million in assets under management as
of December 31, 1997. CRM is owned by its active investment professionals,
Cramer Rosenthal McGlynn, Inc. ("Cramer Rosenthal") and WT Investments, Inc., an
indirect, wholly-owned subsidiary of Wilmington Trust Corporation. Founded in
1973, Cramer Rosenthal had over $3.7 billion in assets under management as of
December 31, 1997 and provides investment advice to individuals, state and local
government agencies, pension and profit sharing plans, trusts, estates,
endowments and other organizations. The Sub-Adviser is located at 707
Westchester Avenue, White Plains, New York 10604.
Investment Policies: A stock will be considered to be attractively valued and,
therefore, eligible for investment in the Fund, if it is trading at a price
which the Sub-Adviser believes is reasonable relative to its own past valuation
history as well as compared to a large universe of stocks selected by the Sub-
Adviser, based on one or more of the following comparisons:
1. price relative to cash flow;
2. price relative to earnings;
3. price relative to sales; and
4. price relative to assets as measured by book value.
The Select Value Opportunity Fund generally intends to invest at least 65% of
its total assets in stocks of companies with market capitalization between $200
million and $5 billion at the time of purchase and which are listed on a
national or regional exchange or over-the-counter with prices quoted daily in
the financial press. The Fund at times may invest temporarily in preferred
stocks, bonds or other defensive issues. Normally, however, the Fund will
maintain at least 80% of the portfolio in common stocks. There are no
restrictions or guidelines regarding the investment of Fund assets in shares
listed on an exchange or traded over-the-counter. The Fund may invest up to 25%
of its assets in foreign securities (not including its investments in
ADRs).
The Select Value Opportunity Fund seeks investment opportunities in companies
whose stocks are trading at attractive valuations relative to the market as a
whole. The most attractive of these companies often exist among those securities
which have been out of favor, where Wall Street coverage is limited and where
there is a degree of misunderstanding or neglect resulting in low expectations.
Value investing may reduce downside risk while offering potential for capital
appreciation as a company gains favor among other investors and its stock price
rises. The portfolio normally will be diversified among different industry
sectors, but is not an index approach. Stocks are bought as investments and
generally held for the long term, rather than as active trading vehicles.
Small-mid cap companies may present greater opportunities for capital
appreciation, but also may involve greater risk. Smaller cap companies, when
compared with larger cap companies, may be more dependent upon a single product,
have limited financial resources, have fewer securities outstanding, experience
greater price fluctuations and be somewhat less liquid than securities of larger
companies.
12
- ---------------------------
Allmerica Investment Trust
<PAGE>
The Fund may invest up to 15% of its net assets in securities which are
illiquid.
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 110%. The portfolio turnover rate for the Fund may vary from year
to year. The Fund experienced such a rate of turnover due to a new Sub-Adviser
assuming responsibility for the Fund on January 1, 1997 and subsequently
repositioning the portfolio.
SELECT INTERNATIONAL EQUITY FUND
Investment Objective: The Select International Equity Fund seeks maximum long-
term total return (capital appreciation and income) primarily by investing in
common stocks of established non-U.S. companies.
Sub-Adviser: Bank of Ireland Asset Management (U.S.) Limited ("BIAM") serves as
Sub-Adviser for the Select International Equity Fund. BIAM is an indirect,
wholly-owned subsidiary of Bank of Ireland. Its main offices are at 26
Fitzwilliam Place, Dublin 2, Ireland. Its U.S. headquarters are at 20 Horseneck
Lane, Greenwich, CT 06830. Bank of Ireland provides investment management
services through a network of affiliated companies, including BIAM which
represents North American clients. As of December 31, 1997, Bank of Ireland
managed approximately $27 billion in global securities for Irish, United
Kingdom, European, Australian, South African, Canadian and U.S. clients.
Investment Policies: To achieve its objective, the Select International Equity
Fund will invest primarily in common stocks of established non-U.S. companies.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in the securities of companies domiciled in at least five foreign
countries, not including the United States. The Fund may also acquire fixed
income debt securities. It will do so, at the discretion of BIAM, primarily for
defensive purposes. The Fund may invest up to 15% of its net assets in
securities which are illiquid.
The Fund's investments may include ADRs which may be sponsored or unsponsored
by the underlying issuer. The Fund may also utilize EDRs, which are similar to
ADRs, in bearer form, designed for use in the European securities market and
GDRs. Investments in foreign securities carry additional risks not present in
domestic securities. See "Certain Investment Strategies and Policies-Foreign
Securities." For hedging purposes, the Fund may engage in the options and
futures strategies described under "Certain Investment Strategies and Policies."
Certain state insurance regulations may impose additional restrictions on the
Fund's holdings of foreign securities.
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 20%. The portfolio turnover rate for the Fund may vary greatly from
year to year.
SELECT GROWTH FUND
Investment Objective: The Select Growth Fund seeks to achieve long-term growth
of capital by investing in a diversified portfolio consisting primarily of
common stocks selected on the basis of their long-term growth potential.
Sub-Adviser: Putnam Investment Management, Inc. ("Putnam"), One Post Office
Square, Boston, Massachusetts 02109, serves as Sub-Adviser to the Select Growth
Fund. Putnam has been an investment manager since 1937. As of December 31, 1997,
Putnam and its affiliates had assets under management of approximately $235
billion. Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., a
holding company which, other than a minority interest owned by employees, is in
turn wholly-owned by Marsh & McLennan Companies, Inc., a publicly-owned holding
company whose principal businesses are international insurance and reinsurance
brokerage, employee benefit consulting and investment management.
Investment Policies: The Select Growth Fund seeks to attain its objective by
investing in securities of companies that appear to have favorable long-term
growth characteristics. Potential for long-term growth is the determinative
factor in the selection of all portfolio securities. Although the Fund may
invest in dividend-paying stocks, the generation of current income is not an
objective of the Fund. Any income that is received is incidental to the Fund's
objective of long-term growth of capital whereas the Sub-Adviser for the Select
Strategic Growth Fund emphasizes value-oriented characteristics as well as
growth potential.
When choosing securities for the portfolio, the Sub-Adviser for the Select
Growth Fund focuses on companies that display strong financial characteristics
and earnings growth potential.
At least 65% of the Fund's assets under normal conditions will consist of
growth-oriented common stocks. The Fund may invest in common stocks of large
well-known companies as well as smaller growth companies, which generally
include companies with a
13
---------------------------
Allmerica Investment Trust
<PAGE>
market capitalization of $500 million or less ("smaller growth companies"). The
stocks of smaller growth companies may involve a higher degree of risk than
other types of securities and the price movement of such securities can be
expected to be more volatile than is the case of the market as a whole. The Fund
may hold stocks traded on one or more of the national exchanges as well as in
the over-the-counter markets. Because opportunities for capital growth may exist
not only in new and expanding areas of the economy but also in mature and
cyclical industries, the Fund's portfolio investments are not limited to any
particular type of company or industry. The Fund may also purchase convertible
bonds and preferred stocks, warrants and debt securities if the Fund's Sub-
Adviser believes they would help achieve the Fund's objective of long-term
growth.
The Fund may invest up to 35% of its assets in both higher-rated and lower-
rated fixed-income securities in seeking its objective of long-term growth of
capital. The Fund may invest up to 15% of its assets in lower-rated securities,
commonly known as "junk bonds," which involve risks discussed under "Certain
Investment Strategies and Policies-High Yield Securities." For more information
concerning the rating categories of corporate debt securities, see the Appendix
to the Prospectus.
When the Sub-Adviser determines that market conditions warrant a temporary,
defensive position, the Fund may invest without limitation in high-grade, fixed-
income securities or U.S. Government securities, or hold assets in cash or cash
equivalents. To the extent the Fund is so invested it is not achieving its
objective to the same degree as under normal conditions. For hedging purposes,
the Fund may engage in the options and futures strategies described under
"Certain Investment Strategies and Policies."
The Select Growth Fund's objective of seeking long-term growth of capital
means that its assets generally will be subject to greater risk than may be
involved in investing in securities that are not selected for growth potential.
The Fund may invest up to 15% of its net assets in securities which are
illiquid. The Fund may also invest up to 25% of its assets in foreign securities
(not including its investments in ADRs).
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 75%. The portfolio turnover for the Fund may vary greatly from year
to year.
SELECT STRATEGIC GROWTH FUND
Investment Objective: The Select Strategic Growth Fund seeks long-term growth of
capital by investing primarily in common stocks of established companies.
Sub-Adviser: Cambiar Investors, Inc. ("Cambiar"), 8400 East Prentice Avenue,
Suite 460, Englewood, Colorado 80111, serves as Sub-Adviser to the Select
Strategic Growth Fund. Cambiar is a registered investment adviser that began
operations in 1973 and became a wholly-owned subsidiary of United Asset
Management Corporation in 1990. Cambiar manages portfolios for major corporate
clients, pension plans and financial institutions. As of December 31, 1997,
Cambiar had approximately $1.9 billion in assets under management.
Investment Policies: Under normal market conditions, the Fund invests at least
65% of its total assets in the common stocks of companies with a market
capitalization of more than $1 billion at the time of investment. In seeking to
achieve its objective, the Fund emphasizes investments in common stocks of well-
known companies that the Sub-Adviser believes have the potential for earnings
growth and capital appreciation.
In selecting stocks for the Fund, the Sub-Adviser seeks quality companies
selling at low relative valuation levels, experiencing unrecognized positive
developments and exhibiting high appreciation potential. Many of the stocks in
the Fund's portfolio are expected to pay regular dividends. However, in the
evaluation of a company, greater consideration normally is given to growth
potential than to dividend income. The Sub-Adviser believes that it is more
important to evaluate a company's probable future earnings, dividends,
competitive position and financial strength than simply to seek current dividend
income. While emphasis is placed on a company's prospects for future growth, the
Fund seeks stocks which are attractively priced relative to their anticipated
long-term value.
In addition to common stocks, the Fund may purchase preferred stocks, debt
securities and securities convertible into or exchangeable for common stocks if
the Sub-Adviser believes they would help achieve the Fund's objective. The Fund
may invest up to 20% of its assets in foreign securities (not including its
investments in ADRs) and up to 15% of its net assets in securities which are
illiquid. The Fund also may engage in options and futures strategies. See
"Certain Investment Strategies and Policies."
14
- ---------------------------
Allmerica Investment Trust
<PAGE>
The Fund at any time may hold a portion of its assets in cash or money market
instruments. When a defensive position is deemed advisable, the Fund may
temporarily invest without limit in high-grade debt securities, securities of
the U.S. Government and its agencies and money market instruments, or retain
cash.
The Fund is not restricted as to portfolio turnover and will make changes in
its portfolio from time to time based on market prices, economic conditions and
other factors. The Fund generally attempts to avoid speculative securities. The
companies in which the Fund invests typically have a large number of publicly
held shares and a high trading volume, resulting in a high degree of liquidity.
The value of the Fund's investments fluctuates in response to many factors,
including activities of individual companies and general market and economic
conditions. The Sub-Adviser attempts to reduce risk through diversification of
the Fund's portfolio and thorough research. However, there are risks inherent in
the investment in any security, including shares of the Fund, and there is no
guarantee that the Fund's investment strategies will be successful.
SELECT INCOME FUND
Investment Objective: The Select Income Fund seeks a high level of current
income. The Fund will invest primarily in investment grade, fixed-income
securities.
Sub-Adviser: Standish, Ayer & Wood, Inc. ("SAW") serves as Sub-Adviser to the
Select Income Fund. SAW was founded in 1933 to provide investment management
services to high net worth individuals and institutions. As of December 31,
1997, total client assets exceeded $39 billion. SAW manages fixed-income
portfolios for major corporate and governmental pension plans, financial
institutions, and endowment and foundation funds. Also, SAW currently serves as
investment adviser to an institutional account sponsored by an AFC affiliate.
Through its affiliate, Standish International Investment Management Company,
L.P., SAW offers international investment services. SAW is an independent
investment counseling firm owned by its twenty-four directors who are active
with the firm. SAW is located at One Financial Center, Boston, Massachusetts
02111.
Investment Policies: Under normal circumstances, at least 65% of the Select
Income Fund's assets, at the time of investment, will be invested in investment
grade corporate debt securities and securities issued or guaranteed as to
principal or interest by the U.S. Government or its agencies or
instrumentalities. Investment grade corporate debt securities are: (a) assigned
a rating within the four highest grades (Baa/BBB or higher) by either Moody's or
S&P, (b) equivalently rated by another nationally recognized statistical rating
organization ("NRSRO") or (c) unrated securities but determined by the Sub-
Adviser to be of comparable quality. Securities rated in the fourth highest
grade (rated Baa and BBB by Moody's and S&P, respectively) are considered to
have some speculative characteristics. For more information concerning the
rating categories of corporate debt securities and commercial paper, see the
Appendix to the Prospectus. The types of securities in which the Fund invests
are corporate debt obligations such as bonds, notes and debentures, and
obligations convertible into common stock; "money market" instruments, such as
bankers acceptances, or negotiable certificates of deposit issued by the 25
largest U.S. banks (in terms of deposits); commercial paper rated Prime-1 by
Moody's or A-1 by S&P; obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; asset-backed securities; mortgage-backed
securities; and stripped mortgage-backed securities. The Fund also may invest in
U.S. dollar obligations of, or guaranteed by, the government of Canada or a
province of Canada or any instrumentality or political subdivision thereof, and
U.S. dollar obligations of supranational entities such as the World Bank,
European Investment Bank and African Development Bank. For more information
about asset-backed securities and mortgage-backed securities and stripped
mortgage-backed securities, see "Certain Investment Strategies and
Policies."
The Fund's investments in corporate debt securities are not limited to any
particular type of company or industry.
The Fund's dollar average weighted maturity and the mix of permitted portfolio
securities as described above will vary from time to time depending, among other
things, on current market and economic conditions and the comparative yields on
instruments in different sectors, such as corporate and Treasuries, and with
different maturities. The dollar average weighted maturity of the portfolio,
excluding money market instruments, is expected to range between 5 and 20 years
under normal market conditions. The Fund may invest up to 35% of its assets in
money market instruments under normal conditions. Although the Fund does not
invest for short-term trading purposes, portfolio securities may be sold from
time to time without regard to the length of time they have been held. The value
of the Fund's portfolio securities generally will vary inversely with changes in
prevailing interest rates, declining as interest rates rise and increasing as
rates decline. The value will also be affected by other market and economic
factors. There is the risk with corporate debt securities that the issuers may
not be able to meet their obligations on interest and principal payments.
The Fund also may invest up to 15% of its net assets in securities which are
illiquid. The Fund may also invest up to 25% of its assets in foreign securities
(not including its investments in ADRs).
15
---------------------------
Allmerica Investment Trust
<PAGE>
The Fund may invest up to 25% of its assets in lower-rated securities,
commonly known as "junk bonds," which involve risks discussed under "Certain
Investment Strategies and Policies-High Yield Securities." For more information
concerning the rating categories of corporate debt securities, see the Appendix
to the Prospectus.
Obligations in which the Select Income Fund may invest include debt
obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Obligations of supranational
entities may be supported by appropriated but unpaid commitments of their member
countries, and there is no assurance that these commitments will be undertaken
or met in the future. The Fund may not invest more than 25% of its assets in
debt obligations of supranational entities.
For hedging purposes, the Fund may engage in the options and futures
strategies described under "Certain Investment Strategies and Policies."
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 79%. The portfolio turnover rate for the Fund may vary from year to
year. A high portfolio turnover rate may result in greater brokerage costs to
the Fund.
MANAGEMENT FEES AND EXPENSES
Under its Management Agreement with the Trust, the Manager is obligated to
perform certain administrative and management services for the Trust; furnishes
to the Trust all necessary office space, facilities, and equipment; and pays the
compensation, if any, of officers and Trustees who are affiliated with the
Manager. Other than the expenses specifically assumed by the Manager under the
Management Agreement, all expenses incurred in the operation of the Trust are
borne by the Trust, including fees and expenses associated with the registration
and qualification of the Trust's shares under the Securities Act of 1933 (the
"1933 Act"); other fees payable to the SEC; independent accountant, legal and
custodian fees; association membership dues; taxes; interest; insurance
premiums; brokerage commissions; fees and expenses of the Trustees who are not
affiliated with the Manager; expenses for proxies, prospectuses and reports to
shareholders; Fund recordkeeping expenses and other expenses.
For the services to the Funds, the Manager receives fees computed daily at an
annual rate based on the average daily net asset value of each Fund as set forth
below:
<TABLE>
<CAPTION>
SELECT SELECT SELECT CAPITAL SELECT VALUE
EMERGING AGGRESSIVE APPRECIATION OPPORTUNITY
MARKETS FUND GROWTH FUND FUND FUND
------------ ----------- ---- ----
<S> <C> <C> <C> <C>
Manager Fee 1.35%* (1) (1) (2)
<CAPTION>
SELECT
SELECT SELECT STRATEGIC SELECT
INTERNATIONAL GROWTH GROWTH INCOME
EQUITY FUND FUND FUND FUND
----------- ---- ---- ----
<S> <C> <C> <C> <C>
Manager Fee (1) 0.85% 0.85% (3)
</TABLE>
- -------------------------------------------
* The Manager voluntarily has agreed until further notice to waive its
management fee in the event that expenses of the Select Emerging Markets Fund
exceed 2.00% of the Fund's average daily net assets. The amount of such waiver
will be limited to the net amount of management fees earned by the Manager
from the Fund after subtracting the fees paid by the Manager to SCMI for sub-
advisory services.
(1) The Manager's fees for the Select Aggressive Growth Fund, Select Capital
Appreciation Fund and Select International Equity Fund, computed daily at an
annual rate based on the average daily net assets of each Fund, are based on
the following schedule:
<TABLE>
<CAPTION>
SELECT
SELECT AGGRESSIVE SELECT CAPITAL INTERNATIONAL
ASSETS GROWTH FUND APPRECIATION FUND EQUITY FUND
------------- ----------- ----------------- -----------
<S> <C> <C> <C>
First $100 Million.......... 1.00% 1.00% 1.00%
Next $150 Million........... 0.90% 0.90% 0.90%
Next $250 Million........... 0.85% 0.85% 0.85%
Over $500 Million........... 0.85% 0.85% 0.85%
</TABLE>
16
- ---------------------------
Allmerica Investment Trust
<PAGE>
(2) The Manager's fee for the Select Value Opportunity Fund, computed daily at
an annual rate based on the average daily net assets of the Fund, is based
on the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $100 Million..................... 1.00%
Next $150 Million..................... 0.85%
Next $250 Million..................... 0.80%
Next $250 Million..................... 0.75%
Over $750 Million..................... 0.70%
</TABLE>
The Manager voluntarily has agreed to limit its management fees to an annual
rate of 0.90% of average daily net assets of the Select Value Opportunity
Fund until further notice.
(3) The Manager's fee for the Select Income Fund, computed daily at an annual
rate based on the average daily net assets of the Fund, is based on the
following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $50 Million..................... 0.60%
Next $50 Million..................... 0.55%
Over $100 Million..................... 0.45%
</TABLE>
The Manager is responsible for the payment of all fees to the Sub-Advisers.
The Manager pays each Sub-Adviser fees computed daily at an annual rate based on
the average daily net asset value of each Fund as set forth below. In certain
Funds, Sub-Adviser fees vary according to the level of assets in such Funds,
which will reduce the fees paid by the Manager as Fund assets grow but will not
reduce the operating expenses of such Funds.
<TABLE>
<CAPTION>
SELECT SELECT SELECT CAPITAL SELECT VALUE
EMERGING AGGRESSIVE APPRECIATION OPPORTUNITY
MARKETS FUND GROWTH FUND FUND FUND
------------ ----------- ---- ----
<S> <C> <C> <C> <C>
Sub-Adviser Fee (4) (5) 0.50% (6)
<CAPTION>
SELECT
SELECT SELECT STRATEGIC SELECT
INTERNATIONAL GROWTH GROWTH INCOME
EQUITY FUND FUND FUND FUND
----------- ---- ---- ----
<S> <C> <C> <C> <C>
Sub-Adviser Fee (7) (8) (8) 0.20%
</TABLE>
(4) For its services, SCMI will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Emerging Markets Fund,
under the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $50 Million..................... 1.00%
Next $50 Million..................... 0.85%
Next $150 Million..................... 0.75%
Over $250 Million..................... 0.60%
</TABLE>
(5) For its services, NACM will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Aggressive Growth Fund,
under the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $100 Million..................... 0.60%
Next $150 Million..................... 0.55%
Next $250 Million..................... 0.50%
Over $500 Million..................... 0.45%
</TABLE>
17
---------------------------
Allmerica Investment Trust
<PAGE>
(6) For its services, CRM will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Value Opportunity Fund,
under the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $100 Million..................... 0.60%
Next $150 Million..................... 0.50%
Next $250 Million..................... 0.40%
Next $250 Million..................... 0.375%
Over $750 Million..................... 0.35%
</TABLE>
(7) For its services, BIAM will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select International Equity
Fund, under the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $50 Million..................... 0.45%
Next $50 Million..................... 0.40%
Over $100 Million..................... 0.30%
</TABLE>
(8) For their services, Putnam and Cambiar will receive a fee computed daily at
an annual rate based on the average daily net assets of the Select Growth
Fund and Select Strategic Growth Fund, respectively, under the following
schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $50 Million..................... 0.50%
Next $100 Million..................... 0.45%
Next $100 Million..................... 0.35%
Next $100 Million..................... 0.30%
Over $350 Million..................... 0.25%
</TABLE>
For the fiscal year ended December 31, 1997, each Fund (except the Select
Emerging Markets Fund and Select Strategic Growth Fund which had not commenced
operations) paid the Manager gross fees before reimbursement at the following
effective rates based on the Fund's average daily net assets:
<TABLE>
<CAPTION>
FUND RATE
---- ----
<S> <C>
Select Aggressive Growth Fund...................... 0.95%
Select Capital Appreciation Fund................... 0.98%
Select Value Opportunity Fund...................... 0.92%
Select International Equity Fund................... 0.97%
Select Growth Fund................................. 0.85%
Select Income Fund................................. 0.59%
</TABLE>
The following table shows voluntary expense limitations which the Manager has
declared for each Fund and the operating expenses incurred for the fiscal year
ended December 31, 1997 for each Fund (except the Select Emerging Markets Fund
and the Select Strategic Growth Fund which had not commenced operations):
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE DAILY ASSETS
----------------------------------
VOLUNTARY EXPENSE OPERATING
FUND LIMITATIONS EXPENSES+
---- ----------- ---------
<S> <C> <C>
Select Emerging Markets Fund * N/A
Select Aggressive Growth Fund 1.35% 0.99%
Select Capital Appreciation Fund 1.35% 1.13%
Select Value Opportunity Fund 1.25% 0.98%
Select International Equity Fund 1.50% 1.15%
Select Growth Fund 1.20% 0.91%
Select Strategic Growth Fund 1.20% N/A
Select Income Fund 1.00% 0.72%
</TABLE>
- -----------------------------------
+ Including reductions such as directed brokerage credits. See "Brokerage
Allocation - Directed Brokerage Program" in the SAI.
18
- ---------------------------
Allmerica Investment Trust
<PAGE>
* The Manager has agreed until further notice to waive voluntarily its
management fee in the event that expenses of the Select Emerging Markets Fund
exceed 2.00% of the Fund's average daily net assets. The amount of such waiver
will be limited to the net amount of management fees earned by the Manager from
the Fund after subtracting fees paid by the Manager to SCMI for sub-advisory
services.
The Manager will voluntarily reimburse its fees and any expenses above the
expense limitations. The expense limitations are voluntary and may be removed at
any time after the Fund's first fiscal year of operations with notice to
existing shareholders. The Manager reserves the right to recover from a Fund any
fees, within a current fiscal year period, which were reimbursed in that same
year to the extent that total annual expenses did not exceed the applicable
expense limitation. The expenses which are subject to the voluntary expense
limitations include management fees, independent accountant, legal and custodian
fees; recordkeeping expenses; fees and expenses of Trustees who are not
affiliated with the Manager; association membership dues, insurance; expenses
for proxies, prospectuses and reports to shareholders and fees associated with
the registration of Fund shares. Non-recurring and extraordinary expenses
generally are excluded in the determination of expense ratios of the Funds for
purposes of determining any applicable expense waiver or reimbursement.
Quotations of yield or total return for any period when an expense limitation is
in effect will be greater than if the limitation had not been in effect.
FUND MANAGER INFORMATION
The following individuals are responsible primarily for the day-to-day
management of the particular Funds as indicated below:
The following portfolio managers are involved in the investment process
utilized for the SELECT EMERGING MARKETS FUND:
John A. Troiano, Chief Executive and Chairman of Emerging Markets Committee,
joined SCMI in 1981 as an investment analyst specializing in engineering and
technology. In 1989, he set up SCMI's Latin American team.
Mark Bridgeman, First Vice President, joined SCMI in 1990 and is a Fund Manager
specializing in the African markets.
Heather F. Crighton, Director, joined SCMI in 1993 as a Fund Manager
specializing in the Asian emerging markets.
The following individuals have served as members of a committee of fund
managers for the SELECT AGGRESSIVE GROWTH FUND since March 1994:
Lawrence S. Speidell is a Partner and Director of Global/Systematic Portfolio
Management and Research at NACM. Prior to joining NACM in 1994, Mr. Speidell
spent ten years with Batterymarch Financial Management. He was also Senior Vice
President and Portfolio Manager at Putnam Management Company from 1971 to 1983.
John J. Kane is a Partner and Senior Portfolio Manager for the U.S. Systematic
portfolios at NACM. He has 28 years of economic/investment experience. Prior to
joining NACM in 1994, Mr. Kane was employed by ARCO Investment Management
Company and General Electric Company.
Mark W. Stuckelman, Portfolio Manager, U.S. Systematic, joined NACM in 1995.
Prior to joining NACM, he was employed for five years with Wells Fargo Bank's
Investment Management Group, Fidelity Management Trust Co., and BARRA, Inc.
The following portfolio managers are involved in the investment process
utilized for the SELECT CAPITAL APPRECIATION FUND:
Brian W.H. Berghuis is a Chartered Financial Analyst who has been with T. Rowe
Price for 13 years. He has 15 years' experience in equity research and
portfolio management. He is head of the investment team for the Fund.
John F. Wakeman has been with T. Rowe Price for 9 years as a research analyst
and portfolio manager. He has 11 years' experience in equity research. He is
part of the investment team for the Fund.
Marc L. Baylin is a Chartered Financial Analyst who has 7 years of investment
experience in equity research. He has been with T. Rowe Price for 5 years as a
Research Analyst and is part of the investment team for the Fund.
19
---------------------------
Allmerica Investment Trust
<PAGE>
The following individuals have served as fund managers for the SELECT VALUE
OPPORTUNITY FUND since January 1, 1997:
Ronald H. McGlynn, Chief Executive Officer and President of Cramer Rosenthal,
has been with Cramer Rosenthal since 1973 and CRM since its founding in 1995.
He has 29 years of investment experience and serves as Co-Chief Investment
Officer and Portfolio Manager.
Jay B. Abramson, who is an Executive Vice President, Director of Research and
Co-Chief Investment Officer, has been with Cramer Rosenthal since 1985 and CRM
since its founding in 1995 and has overall responsibility for investment
research.
Eileen M. Fitzsimons, Vice President and portfolio manager, joined Cramer
Rosenthal in 1996. Previously she was a Managing Director with Dreman Value
Advisors, Inc.
The following portfolio managers are involved in the investment process
utilized for the SELECT INTERNATIONAL EQUITY FUND:
Christopher Reilly, Chief Investment Officer, joined BIAM in 1980 and has had
overall responsibility for asset management since 1985. Previously, he worked
in the United Kingdom in stockbrokering and investment management.
Denis Donovan, Director-Portfolio Management, received an MBA from University
College Dublin. Prior to joining BIAM in 1985, he spent more than 13 years in
the money market and foreign exchange operations of the Central Bank of
Ireland, the Irish equivalent of the U.S. Federal Reserve. He has overall
responsibility for the portfolio management function for all of BIAM's client
base.
Peter Wood joined BIAM in 1985 after spending five years with another leading
investment management firm. He is responsible for portfolio construction.
Jane Neill, Senior Equity Analyst, joined BIAM in 1994. Previously, she was
Chief Investment Officer with another leading Irish investment management
firm.
The following individuals have served as members of a committee of fund
managers for the SELECT GROWTH FUND since July 1, 1996:
Carol C. McMullen, Chief Investment Officer, Global Growth Equities, has been
an investment professional with Putnam since 1995. Prior to 1995, Ms. McMullen
was Senior Vice President of Baring Asset Management.
C. Beth Cotner, CFA and Chief Investment Officer, Large Cap Growth Equity, has
been with Putnam since 1995. Prior to 1995, Ms. Cotner was Executive Vice
President at Kemper Financial Services.
Manual Weiss, CFA and Senior Vice President, has been an investment
professional with Putnam since 1987.
The following portfolio managers are involved in the investment process
utilized for the SELECT STRATEGIC GROWTH FUND:
Michael S. Barish, CFA and President, founded Cambiar in 1973 and has 36 years
of investment experience. He is a generalist and is responsible for the
consumer goods and healthcare securities.
Darrel J. Hershey, Senior Vice President, joined Cambiar in 1985 and has 22
years of investment experience. Prior to 1985, Mr. Hershey was employed by
Financial Programs for 10 years as a portfolio manager. He is responsible for
the technology-hardware securities, consumer services and transportation
securities.
Kathleen M. McCarty, CFA, Senior Vice President, joined Cambiar in 1987. Prior
to 1987, Ms. McCarty was employed by Dain Bosworth as the Vice President of
Research. She is responsible for financial services, communication services and
utilities securities.
Michael J. Gardner, CFA and Vice President, joined Cambiar in 1995. Prior to
1995, Mr. Gardner was employed by Simmons & Co. He is responsible for energy
and capital goods securities.
20
- ---------------------------
Allmerica Investment Trust
<PAGE>
Brian M. Barish, CFA and Vice President, was a Vice President at Lazard Freres
& Co. prior to joining Cambiar in 1997. He is responsible for technology-
software, consumer goods, transportation and international securities.
The following individuals have served as members of a committee of fund
managers for the SELECT INCOME FUND since the Fund's inception in August 1992:
Edward H. Ladd, Chairman and Managing Director, joined SAW in 1962 and is the
firm's economist. He also assists clients in establishing investment
strategies. Mr. Ladd is a Director of the Federal Reserve Bank of Boston, New
England Electric System, Greylock Management and Harvard Management Corporation
and a member of SAW's Executive Committee.
George W. Noyes, President and Managing Director, joined SAW in 1970 and
directs bond policy formulation and manages institutional bond portfolios at
SAW. Mr. Noyes is Vice Chairman of the ICFA Research Foundation and serves on
SAW's Executive Committee.
Dolores S. Driscoll, Managing Director, joined SAW in 1974 and manages fixed-
income portfolios with specific emphasis on mortgage pass-throughs and original
issue discount bonds. Ms. Driscoll also serves on SAW's Executive Committee.
Richard C. Doll, Manager, joined SAW in 1984 and is a portfolio manager with
research responsibilities in convertible bonds. Prior to joining SAW, Mr. Doll
was a Vice President with the Bank of New England.
Maria D. Furman, Vice President and Director, joined SAW in 1976. She is head
of the tax-exempt area and manages insurance and pension fund accounts. Ms.
Furman currently serves on SAW's Executive Committee.
HOW ARE SHARES VALUED?
The net asset value of the shares of each Fund is determined once daily as of
the close of regular trading on the New York Stock Exchange (the "Exchange") on
each day on which the Exchange is open for trading.
Equity securities are valued on the basis of their market value if market
quotations are readily available from the primary market on which the security
is traded. In other cases, they are valued at their fair value as determined in
good faith by the Trustees, although the actual calculations may be performed by
persons acting pursuant to the direction of the Trustees. Debt securities (other
than short-term obligations) are normally valued on the basis of valuations
formulated by a pricing service which utilizes data processing methods to
determine valuations for normal, institutional-size trading units of such
securities. Such methods include the use of market transactions for comparable
securities and various relationships between securities which generally are
recognized by institutional traders. Debt obligations in Funds having a
remaining maturity of 60 days or less are valued at amortized cost when it is
determined that amortized cost approximates fair value. Short-term obligations
of Funds having a remaining maturity of more than 60 days are marked to market
based upon readily available market quotations for such obligations or similar
securities.
The net asset value of the Funds will fluctuate.
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
It is the policy of the Trust to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies so that the Trust will
not be subject to federal income tax on any net income and any capital gains to
the extent they are distributed or are deemed to have been distributed to
shareholders. Dividends out of net investment income will be declared and paid
quarterly in the case of the Select Income Fund and annually in the case of the
Select Emerging Markets Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Value Opportunity Fund, Select International Equity
Fund, Select Growth Fund and Select Strategic Growth Fund. Distributions of net
capital gains for the year, if any, are made annually. All dividends and capital
gain distributions are applied to purchase additional Fund shares at net asset
value as of the payment date. Fund shares are held by the Separate Accounts and
any distributions are reinvested automatically by the Separate Accounts. Tax
consequences to investors in the Separate Accounts which are invested in the
Trust are described in the prospectus or offering circular for such
Accounts.
SALE AND REDEMPTION OF SHARES
Shares of the Funds are sold in a continuous offering and currently may be
purchased only by Separate Accounts established by First Allmerica. The Separate
Accounts are the funding mechanisms for group annuity contracts and variable
life insurance policies.
21
---------------------------
Allmerica Investment Trust
<PAGE>
The Separate Accounts invest in shares of one or more of the Funds. Shares of
each Fund are sold at its net asset value as next computed after receipt of the
purchase order without the addition of any selling commission or "sales load."
The Distributor, Allmerica Investments, Inc., at its expense, may provide
promotional incentives to dealers that sell variable annuity contracts for which
the Funds serve as investment vehicles.
Shares of the Trust are also currently being issued under separate
prospectuses to Separate Accounts of Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Financial Life"), a subsidiary of First Allmerica,
First Allmerica and subsidiaries of First Allmerica which issue variable or
group annuity policies or variable premium life insurance policies ("mixed
funding"). Although neither Allmerica Financial Life nor the Trust currently
foresees any disadvantage, it is conceivable that in the future such mixed
funding may be disadvantageous for variable or group annuity policyowners or
variable premium life insurance policyowners ("Policyowners"). The Trustees of
the Trust intend to monitor events in order to identify any conflicts that may
arise between such Policyowners and to determine what action, if any, should be
taken in response thereto. If the Trustees were to conclude that separate funds
should be established for variable annuity, group annuity and variable premium
life separate accounts, Allmerica Financial Life would pay the attendant
expenses. The Trust has filed an application with the SEC for an exemptive order
to permit Fund shares to be sold to variable annuity and life insurance separate
accounts of both affiliated and unaffiliated life insurance companies and
qualified pension and retirement plans outside of the separate account context.
If the requested order is granted, any Fund may serve as a funding vehicle for
all types of variable annuity contracts and variable life insurance contracts
offered by various participating insurance companies and for qualified plans;
material irreconcilable conflicts may possibly arise among various contract
owners and plan participants and the Board of Trustees will monitor events in
order to identify the existence of any material irreconcilable conflict and
determine what action, if any, should be taken in response to such
conflict.
The Trust redeems shares of each Fund at its net asset value as next computed
after receipt of the request for redemption. The redemption price may be more or
less than the shareholder's cost. No fee is charged by the Trust on redemption.
The group contracts funded through the Separate Accounts are sold subject to
certain fees and charges which may include sales and redemption charges as
described in the prospectus or offering circular for such Separate Account.
Redemption payments will be paid within seven days after receipt of the
written request therefor by the Trust, except that the right of redemption may
be suspended or payments postponed whenever permitted by applicable law and
regulations.
HOW IS PERFORMANCE DETERMINED?
Each Fund's performance may be quoted in advertising. A Fund's performance may
be compared with the performance of other investments or relevant indices. All
performance information is based on historical results and is not intended to
indicate future performance.
A Fund's "yield" is calculated by dividing the Fund's annualized net
investment income per share during a recent 30-day period by the net asset value
per share on the last day of that period.
Total returns are based on the overall dollar or percentage change in value of
a hypothetical investment in a Fund assuming all dividends and capital gain
distributions are reinvested. Cumulative total return reflects the Fund's
performance over a stated period of time. Average annual total return reflects
the hypothetical, annually-compounded return that would have produced the same
cumulative return if the Fund's performance had been constant over the entire
period. Because average annual returns tend to smooth out variations in the
Fund's return, they are not the same as actual year-by-year results.
YIELDS AND TOTAL RETURNS QUOTED FOR THE FUNDS INCLUDE THE EFFECT OF DEDUCTING
THE FUNDS' EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO A
PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE FUNDS CAN BE PURCHASED ONLY
THROUGH A GROUP ANNUITY, YOU SHOULD REVIEW CAREFULLY THE PROSPECTUS OR OFFERING
CIRCULAR FOR THE SEPARATE ACCOUNTS FOR INFORMATION ON RELEVANT CHARGES AND
EXPENSES. INCLUDING THESE CHARGES IN THE QUOTATIONS OF THE FUNDS' YIELDS AND
TOTAL RETURNS WOULD HAVE THE EFFECT OF DECREASING PERFORMANCE. PERFORMANCE
INFORMATION FOR THE FUNDS MUST ALWAYS BE ACCOMPANIED BY, AND BE REVIEWED WITH,
PERFORMANCE INFORMATION FOR THE SEPARATE ACCOUNTS WHICH INVEST IN THE FUNDS.
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established as a Massachusetts business trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated October 11, 1984
(the "Trust Declaration"). A copy of the Trust Declaration is on file with the
Secretary of the Commonwealth of Massachusetts.
22
- ---------------------------
Allmerica Investment Trust
<PAGE>
The Trust has an unlimited authorized number of shares of beneficial interest
which may be divided into an unlimited number of series of such shares, and
which are divided presently into 14 series of shares, one series underlying each
Fund. The eight Funds described in this Prospectus may be purchased by the
Separate Accounts established by First Allmerica. The Trust's shares are
entitled to one vote per share (with proportional voting for fractional shares).
The rights accompanying Fund shares are vested legally in the Separate Accounts.
As a matter of policy, however, holders of group annuity contracts funded
through the Separate Accounts have the right to instruct the Separate Accounts
as to voting Fund shares on all matters to be voted on by Fund shareholders.
Voting rights of the participants in the Separate Accounts are set forth more
fully in the prospectus or offering circular relating to those Accounts. See
"Organization of the Trust" in the SAI for a definition of a "majority vote" of
shareholders.
The Trust is not required to hold annual meetings of shareholders. The
Trustees or shareholders holding at least 10% of the outstanding shares may call
special meetings of shareholders.
FUND RECORDKEEPING AGENT
Investor Services Group calculates net asset value per share and maintains
general accounting records for each Fund. Investor Services Group is entitled to
receive an annual Fund recordkeeping fee based on Fund assets and certain out-
of-pocket expenses.
CUSTODIAN
Bankers Trust Company, 130 Liberty Street, New York, New York 10006, is the
Custodian of the investment securities and other assets of the Trust.
INVESTMENT RESTRICTIONS
The following is a description of certain investment restrictions which are
fundamental and may not be changed with respect to a Fund without shareholder
approval. For a description of certain other investment restrictions, reference
should be made to the SAI.
1. No Fund will concentrate its investments in particular industries,
including debt obligations of supranational entities and foreign governments,
but a Fund may invest up to 25% of the value of its total assets in a particular
industry. The restriction does not apply to investments in obligations issued or
guaranteed by the United States of America, its agencies or instrumentalities.
2. As to 75% of the value of its total assets, no Fund will invest more
than 5% of the value of its total assets in the securities of any one issuer
(other than securities issued by or guaranteed as to principal or interest by
the United States Government or any agency or instrumentality thereof) or
acquire more than 10% of the voting securities of any issuer. The remaining 25%
of assets may be invested in the securities of one or more issuer without regard
to such limitations.
These limitations apply as of the time of purchase. If through market action
the percentage limitations are exceeded, the Fund will not be required to reduce
the amount of its holdings in such investments.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
REPURCHASE AGREEMENTS (APPLICABLE TO ALL FUNDS) AND REVERSE REPURCHASE
AGREEMENTS (APPLICABLE TO THE SELECT CAPITAL APPRECIATION FUND)
Each Fund may invest in repurchase agreements, under which the Fund acquires
ownership of a security (ordinarily U.S. Government Securities) but the seller
agrees at the time of sale to purchase the security at a mutually agreed upon
time and price. Should any seller of a repurchase agreement fail to repurchase
the underlying security or should any seller become insolvent or involved in a
bankruptcy proceeding, a Fund could incur disposition costs and losses.
Repurchase agreements maturing in more than seven days are subject to the 15%
limit on illiquid securities.
When the Select Capital Appreciation Fund invests in a reverse repurchase
agreement, it sells a security to another party such as a banker or broker-
dealer in return for cash and agrees to buy the security back at a future date
and price. Reverse repurchase agreement transactions can be considered a form of
borrowing by the Fund. Reverse repurchase agreements may be used to provide cash
to satisfy unusually heavy redemption requests or for other temporary or
emergency purposes without the necessity of selling portfolio securities or to
earn additional income on portfolio securities, such as treasury bills and
notes.
23
---------------------------
Allmerica Investment Trust
<PAGE>
"WHEN-ISSUED" SECURITIES (APPLICABLE TO ALL FUNDS)
Each Fund may purchase securities on a when-issued or delayed delivery basis.
Delivery and payment normally take place 15 to 45 days after the commitment to
purchase. No income accrues on when-issued securities prior to delivery.
Purchase of when-issued securities involves the risk that yields available in
the market when delivery occurs may be higher than those available when the
when-issued order is placed resulting in a decline in the market value of the
security. There is also the risk that under some circumstances the purchase of
when-issued securities may act to leverage the Fund.
LENDING OF SECURITIES (APPLICABLE TO ALL FUNDS)
For the purpose of realizing additional income, the Funds may lend portfolio
securities to broker-dealers or financial institutions amounting to not more
than 33 1/3% of their respective total assets taken at current value. While any
such loan is outstanding, a Fund will continue to receive amounts equal to the
interest or dividends paid by the issuer on the securities, as well as interest
(less any rebates to be paid to the borrower) on the investment of the
collateral or a fee from the borrower. Each Fund will have the right to call
each loan and obtain the securities. Lending portfolio securities involves
certain risks, including possible delays in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will be made in accordance with
guidelines established by the Board of Trustees.
FOREIGN SECURITIES (APPLICABLE TO ALL FUNDS)
Investments in foreign markets involve substantial risks typically not
associated with investing in the U. S. which should be considered carefully by
the investor. Such risks may include political and economic instability,
differing accounting and financial reporting standards, higher commission rates
on foreign portfolio transactions, less readily available public information
regarding issuers, potentially adverse changes in tax and exchange control
regulations and the potential for restrictions on the flow of international
capital. Foreign securities also involve currency risks. Accordingly, the
relative strength of the U.S. dollar may be an important factor in the
performance of the Fund, depending on the extent of such Fund's foreign
investments. Some foreign securities exchanges may not be as developed or
efficient as those in the United States and securities traded on foreign
securities exchanges generally are subject to greater price volatility. There is
also the possibility of adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation and limitations on the
removal of funds or other assets.
Investments in emerging countries involve exposure to economic structures that
are generally less diverse and mature than in the United States, and to
political systems which may be less stable. In addition, securities of issuers
located in emerging countries may have limited marketability and may be subject
to more abrupt or erratic price fluctuations. The risk also exists that an
emergency situation may arise in one or more emerging markets as a result of
which trading of securities may cease or may be substantially curtailed and
prices for a Fund's portfolio securities in such markets may not be readily
available. Many emerging market countries have experienced high rates of
inflation for many years. Inflation and rapid fluctuations in inflation rates
have had and may continue to have negative effects on the economies and
securities markets of certain countries with emerging markets. Emerging markets
generally are heavily dependent upon international trade and, accordingly, have
been and may continue to be affected adversely by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed by the countries with which they trade. In
certain markets there have been times when settlements of securities
transactions have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions.
The Funds may buy or sell foreign currencies, options on foreign currencies
and foreign currency futures contracts and options thereon and, in addition, the
Select Emerging Markets Fund, Select Capital Appreciation Fund, Select
International Equity Fund and Select Income Fund may invest in foreign currency
forward contracts. Although such instruments may reduce the risk of loss due to
a decline in the value of the currency that is sold, they also limit any
possible gain which might result should the value of the currency increase. Such
instruments will be used primarily to protect a Fund from adverse currency
movements, however, they also involve the risk that anticipated currency
movements will not be accurately predicted, thus adversely affecting a Fund's
total return. See "Options and Futures Transactions."
The Funds' investments may include ADRs. For many foreign securities, there
are U.S. dollar-denominated ADRs which are traded in the United States on
exchanges or over the counter. ADRs represent the right to receive securities of
foreign issuers deposited in a domestic bank or a correspondent bank. An ADR may
be sponsored by the issuer of the underlying foreign security, or it may be
issued in unsponsored form. The holder of a sponsored ADR is likely to receive
more frequent and extensive financial disclosure concerning the foreign issuer
than the holder of an unsponsored ADR and generally will bear lower transaction
charges. The Funds
24
- ---------------------------
Allmerica Investment Trust
<PAGE>
will invest in both sponsored and unsponsored ADRs. The Select International
Equity Fund and the Select Capital Appreciation Fund also may utilize EDRs,
which are designed for use in European securities markets, and also may invest
in GDRs.
Obligations in which the Select Income Fund may invest include debt
obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Obligations of supranational
entities may be supported by appropriated but unpaid commitments of their member
countries, and there is no assurance that these commitments will be undertaken
or met in the future. The Fund may not invest more than 25% of its assets in
debt obligations of supranational entities.
Certain state insurance regulations may impose additional restrictions on a
Fund's holdings of foreign securities.
OPTIONS AND FUTURES TRANSACTIONS (APPLICABLE TO ALL FUNDS), FORWARD CONTRACTS
(APPLICABLE TO THE SELECT EMERGING MARKETS FUND, SELECT CAPITAL APPRECIATION
FUND, SELECT INTERNATIONAL EQUITY FUND AND SELECT INCOME FUND) AND SWAPS
(APPLICABLE TO THE SELECT CAPITAL APPRECIATION FUND)
Through the writing and purchase of put and call options on its securities,
financial indices and foreign currencies, and the purchase and sale of futures
contracts and related options with respect to securities, financial indices and
(in the case of the Select Emerging Markets Fund, Select Capital Appreciation
Fund, Select International Equity Fund and Select Income Fund) foreign
currencies in which it may invest, each Fund may at times seek to hedge against
fluctuations in net asset value, or to a limited extent to engage in non-hedging
strategies. A Fund may not purchase or sell a futures contract for non-hedging
purposes if immediately thereafter the sum of the amount of margin deposits and
amount of variation margins paid from time to time on a Fund's existing futures
and related options positions and premiums paid for related options would exceed
5% of the market value of the Fund's total assets. The Select Emerging Markets
Fund, Select Capital Appreciation Fund, Select International Equity Fund and
Select Income Fund may invest without limitation in foreign currency options.
Each Fund's ability to engage in options and futures strategies will depend on
the availability of liquid markets in such instruments. It is impossible to
predict the amount of trading interest that may exist in various types of
options or futures contracts. Therefore, there is no assurance that a Fund will
be able to utilize these instruments effectively for the purposes stated
above.
Additionally, the Select Emerging Markets Fund, Select Capital Appreciation
Fund, Select International Equity Fund and Select Income Fund may invest in
forward currency contracts with the stated contract value of up to the value of
the Fund's assets and the Select Capital Appreciation Fund in swaps which may
expose these Funds to additional risks and transaction costs.
Risks inherent in the use of futures, options, forward contracts and swaps
("derivative instruments") include (1) the risk that movements in interest
rates, securities prices and currency markets will not be accurately anticipated
and a Fund's total return could be adversely affected as a result; (2) imperfect
correlation, or even no correlation, between the price of derivative instruments
and movements in the prices of the securities, interest rates or currencies
being hedged; (3) the fact that skills and techniques needed to use these
strategies are different from those needed to select portfolio securities; (4)
the lack of assurance that a liquid secondary market will exist for any
particular instrument at any time and, as a result, contractual positions cannot
be closed out easily; (5) the possible loss of principal under certain
conditions; (6) the possible inability of a Fund to purchase or sell a portfolio
security at a time when it would otherwise be favorable to do so due to the need
for the Fund to maintain "cover" or set aside securities in connection with
hedging techniques; and (7) the risk of a loss if the counterparty to the
transaction does not perform as promised. These techniques may increase
volatility of a Fund and may involve a small investment of cash relative to the
magnitude of the risk assumed.
The Funds will purchase futures and options only on exchanges or boards of
trade when there appears to be an active secondary market, but there can be no
assurance that a liquid secondary market will exist for any future or option at
any particular time.
In connection with transactions in futures and related options, the Funds will
be required to deposit as "initial margin" an amount of cash and/or securities.
Thereafter, subsequent payments are made to and from the broker to reflect
changes in the value of the futures contract.
A more detailed explanation of futures, options and other derivative
instruments, and the risks associated with them, is included in the SAI.
RESTRICTED SECURITIES (APPLICABLE TO ALL FUNDS)
The Funds also may purchase fixed-income securities that are not registered
under the 1933 Act ("restricted securities"), but can be offered and sold to
"qualified institutional buyers" under Rule 144A of the 1933 Act. However, each
Fund will not invest more than
25
---------------------------
Allmerica Investment Trust
<PAGE>
15% of its net assets in restricted securities (and securities deemed to be
illiquid) unless the Board of Trustees determines, based upon a continuing
review of the trading markets for the specific restricted security, that such
restricted securities are liquid. The Board of Trustees has adopted guidelines
and delegated to the Manager the daily function of determining and monitoring
liquidity of restricted securities. The Board, however, will retain sufficient
oversight and be responsible ultimately for the determinations. Since it is not
possible to predict with assurance exactly how this market for restricted
securities sold and offered under Rule 144A will develop, the Board will monitor
carefully a Funds' investments in securities, focusing on such important
factors, among others, as valuation, liquidity and availability of information.
This investment practice could have the effect of increasing the level of
illiquidity in a Fund to the extent that qualified institutional buyers become
for a time uninterested in purchasing these restricted securities. As a result,
a Fund might not be able to sell these securities when its Sub-Adviser wishes to
do so, or might have to sell them at less than fair value. In addition, market
quotations are less readily available. Therefore judgment at times may play a
greater role in valuing these securities than in the case of unrestricted
securities.
INVESTMENTS IN MONEY MARKET SECURITIES (APPLICABLE TO ALL FUNDS)
Any Fund may hold at least a portion of its assets in cash equivalents or
money market instruments. There is always the risk that the issuer of a money
market instrument may be unable to make payment upon maturity.
HIGH YIELD SECURITIES (APPLICABLE TO THE SELECT EMERGING MARKETS FUND, SELECT
CAPITAL APPRECIATION FUND, SELECT GROWTH FUND AND SELECT INCOME FUND)
Corporate debt securities purchased by the Select Emerging Markets Fund,
Select Capital Appreciation Fund, Select Growth Fund and Select Income Fund will
be rated at the time of purchase B or better by Moody's or S&P, or equivalently
rated by another NRSRO, or unrated but believed by the Sub-Adviser to be of
comparable quality under the guidelines established for the Funds. The Select
Growth Fund may not invest more than 15% of its assets, the Select Income Fund
may not invest more than 25% of its assets and the Select Emerging Markets Fund
and Select Capital Appreciation Fund may not invest more than 35% of their
assets at the time of investment in securities rated below Baa by Moody's or BBB
by S&P, or equivalently rated by another NRSRO, or unrated but believed by the
Sub-Adviser to be of comparable quality. Securities rated B by Moody's or S&P
(or equivalently by another NRSRO) are below investment grade and are
considered, on balance, to be predominantly speculative with respect to capacity
to pay interest and repay principal and will generally involve more credit risk
than securities in the higher rating categories.
Periods of economic uncertainty and changes can be expected to result in
increased volatility of market prices of lower-rated securities, commonly known
as "high yield" securities or "junk bonds," and of the asset value of the Select
Emerging Markets Fund, Select Capital Appreciation Fund, Select Growth Fund and
Select Income Fund. Many issuers of high yield corporate debt securities are
leveraged substantially at times, which may impair their ability to meet debt
service obligations. Also, during an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial
stress.
The lack of a liquid secondary market in certain lower-rated securities may
have an adverse impact on their market price and the ability of a Fund to
dispose of particular issues when necessary to meet its liquidity needs or in
response to a specific economic event such as a deterioration in the credit-
worthiness of the issuer. In addition, a less liquid market may interfere with
the ability of a Fund to value accurately high yield securities and,
consequently, value a Fund's assets. Furthermore, adverse publicity and investor
perceptions may decrease the value and liquidity of high yield securities. It is
reasonable to expect any recession to disrupt severely the market for high yield
fixed-income securities, have an adverse impact on the value of such securities
and adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon. The market prices of lower-rated securities
generally are less sensitive to interest rate changes than higher-rated
investments, but more sensitive to adverse economic or political changes or
individual developments specific to the issuer. Periods of economic or political
uncertainty and change can be expected to result in volatility of price of these
securities.
The Funds also may invest in unrated debt securities of foreign and domestic
issuers. Unrated debt, while not necessarily of lower quality than rated
securities, may not have as broad a market. Sovereign debt of foreign
governments generally is rated by country. Because these ratings do not take
into account individual factors relevant to each issue and may not be updated
regularly, the Sub-Adviser may treat such securities as unrated debt. Unrated
debt securities and securities with different ratings from more than one agency
will be included in the 15%, 25% and 35% limits of the Funds as stated above,
unless such Fund's Sub-Adviser deems such securities to be the equivalent of
investment grade securities. See the Appendix for a description of the bond
ratings.
26
---------------------------
Allmerica Investment Trust
<PAGE>
ASSET-BACKED SECURITIES (APPLICABLE TO THE SELECT INCOME FUND)
The Fund may purchase asset-backed securities, which represent a participation
in, or are secured by and payable from, a stream of payments generated by
particular assets, frequently a pool of assets similar to one another. Assets
generating such payments include instruments such as motor vehicle installment
purchase obligations, credit card receivables and home equity loans. Payment of
principal and interest may be guaranteed for certain amounts and time periods by
a letter of credit issued by a financial institution unaffiliated with the
issuer of the securities. The estimated life of an asset-backed security varies
with the prepayment experience of the underlying debt instruments. The rate of
such prepayments, and hence the life of the asset-backed security, will be
primarily a function of current market rates, although other economic and
demographic factors will be involved. Under certain interest rate and prepayment
rate scenarios, the Fund may fail to recoup fully its investment in asset-
backed securities. The Fund will not invest more than 20% of its total assets
in asset-backed securities.
MORTGAGE-BACKED SECURITIES (APPLICABLE TO THE SELECT INCOME FUND)
The Fund may invest in mortgage-backed securities which are debt obligations
secured by real estate loans and pools of loans on single family homes, multi-
family homes, mobile homes and, in some cases, commercial properties. The Fund
may acquire securities representing an interest in a pool of mortgage loans that
are issued or guaranteed by a U.S. government agency such as Ginnie Mae, Fannie
Mae and Freddie Mac.
Mortgage-backed securities are in most cases "pass-through" instruments
through which the holder receives a share of all interest and principal payments
from the mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yields of a particular issue of pass-
through certificates. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When the mortgage obligations are prepaid, the Fund reinvests the prepaid
amounts in securities, the yield of which reflects interest rates prevailing at
the time. Moreover, prepayment of mortgages that underlie securities purchased
at a premium could result in losses.
The Fund also may invest in multiple class securities issued by U.S.
government agencies and instrumentalities such as Fannie Mae, Freddie Mac and
Ginnie Mae, including guaranteed collateralized mortgage obligations ("CMOs")
and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates, when consistent with the Fund's investment
objective, policies and limitations. A CMO is a type of bond secured by an
underlying pool of mortgages or mortgage pass-through certificates that are
structured to direct payment on underlying collateral to different series or
classes of obligations. A REMIC is a CMO that qualifies for special tax
treatment under the Internal Revenue Code and invests in certain mortgages
principally secured by interests in real property and other permitted
investments.
CMOs and guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by Fannie Mae, Freddie Mac and Ginnie Mae are types of multiple pass-
through securities. Investors may purchase beneficial interests in REMICs, which
are known as "regular" interests or "residual" interests. The Fund currently
does not intend to purchase residual interests in REMICs. The REMIC Certificates
represent beneficial ownership interests in a REMIC trust, generally consisting
of mortgage loans or Fannie Mae, Freddie Mac or Ginnie Mae guaranteed mortgage
pass-through certificates. The obligations of Fannie Mae or Freddie Mac under
their respective guaranty of the REMIC Certificates are obligations solely of
Fannie Mae or Freddie Mac, respectively.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are available otherwise.
For Freddie Mac REMIC Certificates, Freddie Mac guarantees the timely payment
of interest and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified residential mortgages or
participations therein purchased by Freddie Mac and placed in a PC pool. With
respect to principal payments on PCs, Freddie Mac generally guarantees ultimate
collection of all principal of the related mortgage loans without offset or
deduction. Freddie Mac also guarantees timely payment of principal on certain
PCs referred to as "Gold PCs."
Ginnie Mae REMIC Certificates guarantee the full and timely payment of
interest and principal on each class of securities (in accordance with the terms
of those classes). This Ginnie Mae guarantee is backed by the full faith and
credit of the United States.
REMIC Certificates issued by Fannie Mae, Freddie Mac and Ginnie Mae are
treated as U.S. government securities for purposes of investment policies. There
can be no assurance that the U.S. Government will continue to provide financial
support to Fannie Mae, Freddie Mac or Ginnie Mae in the future.
27
---------------------------
Allmerica Investment Trust
<PAGE>
STRIPPED MORTGAGE-BACKED SECURITIES (APPLICABLE TO THE SELECT INCOME FUND)
The Fund may invest in stripped mortgage-backed securities ("SMBS"). SMBS are
derivative multiclass mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
SMBS usually are structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. One type of SMBS will have one class receiving some of the interest and
most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In some cases,
one class will receive all of the interest (the interest-only or "IO" class)
while the other class will receive all of the principal (the principal-only or
"PO" class). The yield to maturity on an IO class is extremely sensitive to the
rate of principal payments (including prepayment on the related underlying
mortgage assets), and a rapid rate of principal payments may have a material,
adverse effect on a portfolio yield to maturity from these securities. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Fund may fail to recoup fully their initial investment in these
securities even if the security is in one of the highest rating categories.
Certain SMBS may be deemed "illiquid" and subject to the Fund's limitations on
investment in illiquid securities. The market value of the PO class generally is
unusually volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest from mortgage assets
generally are higher than prevailing market yields in other mortgage-backed
securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be recouped fully. The Sub-
Adviser will seek to manage these risks (and potential benefits) by investing in
a variety of such securities and by using certain hedging techniques.
HEDGING TECHNIQUES AND INVESTMENT PRACTICES (APPLICABLE TO THE SELECT EMERGING
MARKETS FUND, SELECT CAPITAL APPRECIATION FUND AND SELECT INTERNATIONAL EQUITY
FUND)
The Select Emerging Markets Fund, Select Capital Appreciation Fund and Select
International Equity Fund may employ certain strategies in order to manage
exchange rate risks. For example, each Fund may hedge some or all of its
investments denominated in a foreign currency against a decline in the value of
that currency. The Funds may enter into contracts to sell that foreign currency
for U.S. dollars (not exceeding the value of the Fund's assets denominated in or
exposed to that currency) or by participating in options on futures contracts
with respect to such currency ("position hedge"). The Funds also could hedge
that position by selling a second currency that is expected to perform similarly
to the currency in which portfolio investments are denominated, for U.S. dollars
("proxy hedge"). The Funds also may enter into a forward contract to sell the
currency in which the security is denominated for a second currency that is
expected to perform better relative to the U.S. dollar if the Sub-Adviser
believes there is a reasonable degree of correlation between movements in the
two currencies ("cross-hedge"). As an operational policy, the Funds will not
commit more than 10% of their assets to the consummation of cross-hedge
contracts and either will cover currency hedging transactions with liquid
portfolio securities denominated in or whose value is tied to the applicable
currency or segregate liquid assets in the amount of such commitments. In
addition, when a Fund anticipates purchasing securities denominated in a
particular currency, the Fund may enter into a forward contract to purchase such
currency in exchange for the dollar or another currency ("anticipatory
hedge").
These strategies minimize the effect of currency appreciation as well as
depreciation, but do not protect against a decline in the underlying value of
the hedged security. In addition, such strategies may reduce or eliminate the
opportunity to profit from increases in the value of the original currency and
may have an adverse impact on a Fund's performance if its Sub-Adviser's
projection of future exchange rates is inaccurate.
STAND-BY COMMITMENTS (APPLICABLE TO THE SELECT INCOME FUND)
Under a stand-by commitment, a dealer agrees to purchase from the Fund, at the
Fund's option, specified securities at a specified price. Stand-by commitments
are exercisable by the Fund at any time before the maturity of the underlying
security, and may be sold, transferred or assigned by the Fund only with respect
to the underlying instruments.
Although stand-by commitments are often available without the payment of any
direct or indirect consideration, if necessary or advisable, the Fund may pay
for a stand-by commitment either separately in cash or by paying a higher price
for securities which are acquired subject to the commitment.
Where the Fund pays any consideration directly or indirectly for a stand-by
commitment, its cost will be reflected as unrealized depreciation for the period
during which the commitment is held by the Fund.
28
- ---------------------------
Allmerica Investment Trust
<PAGE>
The Fund will enter into stand-by commitments only with banks and broker-
dealers which present minimal credit risks. In evaluating the creditworthiness
of the issuer of a stand-by commitment, the Sub-Adviser will review periodically
the issuer's assets, liabilities, contingent claims and other relevant financial
information.
The Fund will acquire stand-by commitments solely to facilitate liquidity and
does not intend to exercise its rights thereunder for trading purposes. Stand-by
commitments will be valued at zero in determining the Fund's net asset
value.
29
---------------------------
Allmerica Investment Trust
<PAGE>
APPENDIX
Descriptions of Moody's Investors Service, Inc. ("Moody's") and Standard and
Poor's Ratings Service, a division of McGraw-Hill Companies, Inc. ("S&P")
commercial paper and bond ratings:
COMMERCIAL PAPER RATINGS
MOODY'S EMPLOYS THREE DESIGNATIONS, ALL JUDGED TO BE INVESTMENT GRADE, TO
INDICATE THE RELATIVE REPAYMENT CAPACITY OF RATED ISSUERS. THE TWO HIGHEST
DESIGNATIONS ARE AS FOLLOWS:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-l repayment
capacity normally will be evidenced by the following characteristics:
- Leading market positions in well-established industries.
- High rates of returns on funds employed.
- Conservation capitalization structures with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This normally
will be evidenced by many of the characteristics cited above, but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be subject more
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
S&P COMMERCIAL PAPER RATINGS ARE GRADED INTO SEVERAL CATEGORIES, RANGING FROM
"A-1" FOR THE HIGHEST QUALITY OBLIGATIONS TO "D" FOR THE LOWEST. THE TWO HIGHEST
RATING CATEGORIES ARE DESCRIBED AS FOLLOWS:
A-1 - This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MUNICIPAL OBLIGATIONS
Moody's ratings for state and municipal and other short-term obligations will
be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in long-term borrowing risk are of lesser importance in the long run.
Symbols used will be as follows:
MIG-1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG-2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
A short-term rating also may be assigned on an issue having a demand feature.
Such ratings will be designated as VMIG to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event the demand is not met.
VMIG-1 and VMIG-2 ratings carry the same definitions as MIG-1 and MIG-2,
respectively.
30
- ---------------------------
Allmerica Investment Trust
<PAGE>
DESCRIPTION OF MOODY'S BOND RATINGS
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and generally are referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment some time in the future.
Baa - Bonds that are rated Baa are considered to be medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.
Those bonds within the Aa, A, Baa, Ba and B categories that Moody's believes
possess the strongest credit attributes within those categories are designated
by the symbols Aa1, A1, Baa1, Ba1 and B1.
DESCRIPTION OF S&P'S DEBT RATINGS
AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC, or C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and
C the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
Plus (+) or (-): The ratings from AA to CCC may be modified by the addition of
a plus or minus sign to show relative standing within the major categories.
31
---------------------------
Allmerica Investment Trust
<PAGE>
ALLMERICA INVESTMENT TRUST
MONEY MARKET FUND
440 Lincoln Street
Worcester, Massachusetts 01653
(508) 855-1000
Money Market Fund (the "Fund") is a separate portfolio of Allmerica Investment
Trust (the "Trust"), a professionally-managed, open-end investment company
designed to provide an underlying investment vehicle for insurance-related
accounts. Only one of the separate portfolios of the Trust, the Fund, is offered
by this Prospectus.
Currently, shares of the Fund may only be purchased by the separate accounts
("Separate Accounts") established by First Allmerica Financial Life Insurance
Company ("First Allmerica") or Allmerica Financial Life Insurance and Annuity
Company ("Allmerica Financial Life"), an indirect, wholly-owned subsidiary of
First Allmerica, for the purpose of funding variable annuity contracts or
variable life insurance policies. The prospectus of the specific insurance
product you have chosen should be read in conjunction with this Prospectus.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Certain additional
information is contained in the Statement of Additional Information dated May 1,
1998 (the SAI"), which has been filed with the Securities and Exchange
Commission (the "SEC"), is incorporated herein by reference and is available
upon request without charge from the Trust, 440 Lincoln Street, Worcester, MA
01653, (508) 855-1000.
Investment in the Fund is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY
INSTITUTION. SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC") OR ANY OTHER GOVERNMENTAL AGENCY, AND ARE SUBJECT TO VARIOUS RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DATED MAY 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS...................................................... 3
HOW IS THE FUNDS MANAGED?................................................. 6
WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES?........................... 6
MANAGEMENT FEES AND EXPENSES.............................................. 7
FUND MANAGER INFORMATION.................................................. 8
HOW ARE SHARES VALUED?.................................................... 8
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS................................... 8
SALE AND REDEMPTION OF SHARES............................................. 8
HOW IS PERFORMANCE DETERMINED?............................................ 9
ORGANIZATION AND CAPITALIZATION OF THE TRUST.............................. 9
INVESTMENT RESTRICTIONS................................................... 9
CERTAIN INVESTMENT STRATEGIES AND POLICIES................................ 10
APPENDIX.................................................................. 12
</TABLE>
2
- ---------------------------
Allmerica Investment Trust
<PAGE>
FINANCIAL HIGHLIGHTS
The following Financial Highlights have been audited by Price Waterhouse LLP,
independent accountants of the Trust. This information should be read in
conjunction with the financial statements and notes thereto which appear in the
Trust's annual report for the year ended December 31, 1997 ("Annual Report"),
and which are incorporated by reference in the SAI. Further information about
the performance of the Fund and the Trust is contained in the Annual Report
which may be obtained without charge from the Trust, 440 Lincoln Street,
Worcester, MA 01653, (508) 855-1000.
3
-----------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------------------ ----------------------------------------
NET REALIZED DISTRI- NET
NET AND BUTIONS INCREASE
ASSET UNREALIZED DIVIDENDS FROM NET DISTRI- (DECREASE)
VALUE NET GAIN (LOSS) TOTAL FROM FROM NET REALIZED BUTIONS RETURN IN
YEAR ENDED BEGINNING INVESTMENT ON INVESTMENT INVESTMENT CAPITAL IN OF TOTAL NET ASSET
DECEMBER 31, OF YEAR INCOME/(1)/ INVESTMENTS OPERATIONS INCOME GAINS EXCESS CAPITAL DISTRIBUTIONS VALUE
- ------------ ------- ------ ----------- ---------- ------ ----- ------ ------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market
Fund
1997 $ 1.000 $ 0.053 $ -- $ 0.053 $ (0.053) $ -- $ -- $ -- $ (0.053) $ --
1996 1.000 0.052 -- 0.052 (0.052) -- -- -- (0.052) --
1995 1.000 0.057 -- 0.057 (0.057) -- -- -- (0.057) --
1994 1.000 0.039 -- 0.039 (0.039) -- -- -- (0.039) --
1993 1.000 0.030 -- 0.030 (0.030) -- -- -- (0.030) --
1992 1.000 0.037 -- 0.037 (0.037) -- -- -- (0.037) --
1991 1.000 0.060 -- 0.060 (0.060) -- -- -- (0.060) --
1990 1.000 0.078 -- 0.078 (0.078) -- -- -- (0.078) --
1989 1.000 0.086 -- 0.086 (0.086) -- -- -- (0.086) --
1988 1.000 0.071 -- 0.071 (0.071) -- -- -- (0.071) --
</TABLE>
- --------------------------------------------------------------------------------
(A) Including reimbursements and reductions.
(B) Excluding reductions. Certain Portfolios have entered into varying
arrangements with brokers who reduced a portion of the Portfolio's expenses.
(C) Excluding reimbursements and reductions.
(D) For fiscal years beginning on or after September 1, 1995, a Portfolio is
required to disclose its average commission rate per share for trades for
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
(1) Net investment income per share before reimbursement of fees by the
investment adviser were and $0.030 in 1993 and $0.084/(2)/ in 1988
for Money Market Fund.
(2) Unaudited.
4
- ---------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------------------------------------
NET ASSET NET ASSETS
VALUE END OF NET PORTFOLIO AVERAGE
END OF TOTAL YEAR INVESTMENT OPERATING EXPENSES MANAGEMENT FEES TURNOVER COMMISSIONS
YEAR RETURN (000'S) INCOME (A) (B) (C) GROSS NET RATE RATE/(D)/
---- ------ ----- ------ --- --- --- ----- --- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.000 5.47% $260,620 5.33% 0.35% 0.35% 0.35% 0.27% 0.27% N/A $ --
1.000 5.36% 217,256 5.22% 0.34% 0.34% 0.34% 0.28% 0.28% N/A --
1.000 5.84% 155,211 5.68% 0.36% -- 0.36% 0.29% 0.29% N/A --
1.000 3.93% 95,991 3.94% 0.45% -- 0.45% 0.31% 0.31% N/A --
1.000 3.00% 71,052 2.95% 0.42% -- 0.43% 0.32% 0.31% N/A --
1.000 3.78% 64,506 3.65% 0.44% -- 0.44% N/A N/A N/A --
1.000 6.67% 39,909 5.98% 0.43% -- 0.43% N/A N/A N/A --
1.000 8.63% 28,330 8.22% 0.42% -- 0.42% N/A N/A N/A --
1.000 9.69% 12,060 8.62% 0.58% -- 0.58% N/A N/A N/A --
1.000 7.30%/(2)/ 7,156 7.13% 0.60% -- 0.71% N/A N/A N/A --
</TABLE>
5
-----------------------------
Allmerica Investment Trust
<PAGE>
HOW IS THE FUND MANAGED?
The overall responsibility for the supervision of the affairs of the Trust
vests in the Board of Trustees of the Trust which meets on a quarterly basis.
Allmerica Financial Investment Management Services, Inc. (the "Manager") is
responsible for the management of the Trust's day-to-day business affairs and
has general responsibility for the management of the investments of the Fund.
The Manager, at its expense, has contracted with Allmerica Asset Management,
Inc. ("AAM" or the "Sub-Adviser") to manage the investments of the Fund, subject
to the requirements of the Investment Company Act of 1940, as amended (the "1940
Act").
The Manager is an indirect, wholly-owned subsidiary of Allmerica Financial
Corporation ("AFC"), a Delaware holding company for a group of affiliated
companies, the largest of which is First Allmerica, a life insurance company
which was organized in Massachusetts in 1844. The Manager, AFC and First
Allmerica are located at 440 Lincoln Street, Worcester, Massachusetts 01653. The
Manager succeeded Allmerica Investment Management Company, Inc. ("AIMCO") as
manager of the Trust on April 16, 1998. As part of a reorganization, AIMCO
transferred to the Manager that portion of its business relating to the
provision of investment advisory services exclusively to investment companies
registered under the 1940 Act such as the Trust while AIMCO retained its
financial planning business. The same personnel and procedures previously
employed by AIMCO to service the Trust will be used by the Manager. The
Manager also serves as investment manager of the Palladian Trust, another
open-end investment management company.
The Sub-Adviser, which has been selected on the basis of various factors
including management experience, investment techniques, and staffing, is
authorized to engage in portfolio transactions on behalf of the Fund subject to
such general or specific instructions as may be given by the Trustees and/or the
Manager. The terms of the Sub-Adviser Agreement cannot be changed materially
without the approval of a majority interest of the shareholders of the Fund. The
Sub-Adviser has been selected by the Manager and the Trustees in consultation
with BARRA RogersCasey, Inc. ("BARRA RogersCasey"), a pension consulting firm.
BARRA RogersCasey is wholly controlled by BARRA, Inc. The cost of such
consultation is borne by the Manager.
BARRA RogersCasey provides consulting services to pension plans representing
hundreds of billions of dollars in total assets and, in its consulting
capacity, monitors the investment performance of over 1,000 investment advisers.
As a consultant, BARRA RogersCasey has no decision-making authority with respect
to the Funds, and is not responsible for advice provided by the Manager or the
Sub-Advisers. From time to time, specific clients of BARRA RogersCasey and the
Sub-Adviser will be named in sales materials.
Ongoing performance of the Sub-Adviser is reviewed and evaluated by a
committee of the Board of Trustees, which also includes members who are officers
of First Allmerica or its affiliates, in consultation with BARRA RogersCasey.
Historical performance data for the Fund is set forth under "Financial
Highlights." The Manager is responsible for the payment of all fees to the Sub-
Adviser.
The Manager also has entered into an Administrative Services Agreement with
First Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-
owned subsidiary of First Data Corporation, whereby Investor Services Group
performs administrative services for the Fund and is entitled to receive an
administrative fee and certain out-of-pocket expenses. The Manager is
responsible for the payment of the administrative fee to Investor Services
Group.
WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES?
Investment Objective: The Fund seeks to obtain maximum current income consistent
with preservation of capital and liquidity. There is no assurance that the Fund
will achieve its investment objective.
Sub-Adviser: AAM, an indirect wholly-owned subsidiary of AFC, was incorporated
in 1993 and is located at 440 Lincoln Street, Worcester, Massachusetts 01653. As
of December 31, 1997, AAM had approximately $11 billion in assets under
management. AAM serves as investment adviser to First Allmerica's General
Account and to a number of affiliated insurance companies and other affiliated
accounts and as adviser to Allmerica Securities Trust, a diversified, closed-end
management investment company.
The Fund's investment objective and investment policies are not fundamental
and may be changed without shareholder approval.
6
- ---------------------------
Allmerica Investment Trust
<PAGE>
Investment Policies: The Fund seeks to achieve its objective by investing in the
following high quality money market instruments:
(a) Obligations issued or guaranteed by the United States Government, its
agencies, or instrumentalities;
(b) Commercial paper which meets the ratings requirements as set forth in the
paragraph below;
(c) Obligations of banks or savings and loan associations (such as bankers
acceptances and certificates of deposit, including dollar-denominated
obligations of foreign branches of U.S. banks ("Eurodollars") and U.S.
branches of foreign banks if such U.S. branches are subject to state
banking requirements and Federal Reserve reporting requirements) which at
the date of the investment have deposits of at least $1 billion as of
their most recently published financial statements;
(d) Repurchase agreements with respect to obligations described under (a)
above (such obligations subject to repurchase agreement may bear
maturities of more than one year); and
(e) Cash and cash equivalents.
The Fund will not purchase any security unless (i) the security has received
the highest or second highest quality rating by at least two nationally-
recognized statistical rating organizations ("NRSROs") or by one NRSRO if only
one has rated the security, or (ii) the security is unrated and in the opinion
of AAM, as Sub-Adviser, in accordance with guidelines adopted by the Trustees,
is of a quality comparable to one of the two highest ratings of an NRSRO. These
standards must be satisfied at the time an investment is made. If the quality of
the investment later declines, the Fund may continue to hold the investment, but
the Trustees will evaluate whether the security continues to present minimal
credit risks. See the Appendix for an explanation of NRSRO ratings.
The Fund will limit its portfolio investments to securities with a remaining
maturity of 397 days or less as of the time of purchase, in accordance with the
Trustees' guidelines. The portfolio will be managed so as to maintain a dollar-
weighted maturity of 90 days or less. In order to maximize the yield on its
assets, the Fund intends to be as fully invested at all times as is reasonably
practicable. There is always the risk that the issuer of an instrument may be
unable to make payment upon maturity.
The Fund may hold uninvested cash reserves pending investment during
temporary, defensive periods or if, in the opinion of the Sub-Adviser, suitable
securities are not available for investment. Securities in which the Fund may
invest may not earn as high a level of current income as long-term, lower
quality securities which, however, generally have less liquidity, greater market
risk and more fluctuation in market value.
The Fund may invest up to 25% of its assets in U.S. dollar denominated foreign
securities (not including its investments in American Depositary Receipts
("ADRs")). The Fund may invest up to 10% of its net assets in securities which
are illiquid.
MANAGEMENT FEES AND EXPENSES
Under its Management Agreement with the Trust, the Manager is obligated to
perform certain administrative and management services for the Trust; furnishes
to the Trust all necessary office space, facilities, and equipment; and pays the
compensation, if any, of officers and Trustees who are affiliated with the
Manager. Other than the expenses specifically assumed by the Manager under the
Management Agreement, all expenses incurred in the operation of the Trust are
borne by the Trust, including: fees and expenses associated with the
registration and qualification of the Trust's shares under the Securities Act of
1933 (the "1933 Act"); other fees payable to the SEC; independent accountant,
legal and custodial fees; association membership dues; taxes; interest;
insurance premiums; brokerage commissions; fees and expenses of the Trustees who
are not affiliated with the Manager; expenses for proxies, prospectuses and
reports to shareholders; Fund recordkeeping expenses and other expenses.
For services to the Fund, the Manager receives fees computed daily at an
annual rate based on the average daily net asset value of the Fund in accordance
with the following schedule:
Assets Rate
------ ----
First $50 Million......... 0.35%
Next $200 Million......... 0.25%
Over $250 Million......... 0.20%
The Manager is responsible for the payment of all fees to the Sub-Adviser. The
Manager pays the Sub-Adviser fees computed daily at an annual rate of 0.10%
based on the average daily net asset value of the Fund. For the fiscal year
ended December 31, 1997, the Fund paid the Manager gross fees before
reimbursement at the effective rate of 0.27% of the Fund's average daily net
assets.
7
-----------------------------
Allmerica Investment Trust
<PAGE>
The voluntary expense limitation which the Manager has declared for the Fund
and the operating expenses incurred for the fiscal year ended December 31, 1997
for the Fund were 0.60% and 0.35%, respectively.
The Manager will voluntarily reimburse its fees and any expenses above the
expense limitation. The expense limitation is voluntary and may be removed at
any time with notice to existing shareholders. The Manager reserves the right to
recover from the Fund any fees, within a current fiscal year period, which were
reimbursed in that same year to the extent that total annual expenses did not
exceed the applicable expense limitation. The expenses which are subject to the
voluntary expense limitations include management fees, independent accountant,
legal and custodian fees; recordkeeping expenses; fees and expenses of Trustees
who are not affiliated with the Manager; association membership dues, insurance;
expenses for proxies, prospectuses and reports to shareholders and fees
associated with the registration of Fund shares. Non-recurring and extraordinary
expenses are generally excluded in the determination of expense ratios of the
Fund for purposes of determining any applicable expense waiver or reimbursement.
Quotations of yield or total return for any period when an expense limitation is
in effect will be greater than if the limitation had not been in effect.
FUND MANAGER INFORMATION
John C. Donohue, Assistant Vice President of AAM, has served as fund manager
for the Money Market Fund since March, 1995. Mr. Donohue was a portfolio manager
at CS First Boston Investment Management prior to joining AAM in 1995.
HOW ARE SHARES VALUED?
The net asset value of the shares of the Fund is determined once daily as of
the close of regular trading on the New York Stock Exchange (the "Exchange") on
each day on which the Exchange is open for trading. All securities of the Fund
are valued at amortized cost. The Fund attempts to maintain a stable net asset
value of $1.00 per share, but there is no assurance that it will be able to do
so.
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
It is the policy of the Trust to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies so that the Trust will
not be subject to federal income tax on any net income and any capital gains to
the extent they are distributed or are deemed to have been distributed to
shareholders. Dividends out of net investment income will be declared and paid
daily. Distributions of net capital gains for the year, if any, are made
annually. All dividends and capital gain distributions are applied to purchase
additional Fund shares at net asset value as of the payment date. Fund shares
are held by the Separate Accounts and any distributions are reinvested
automatically by the Separate Accounts. Tax consequences to investors in the
Separate Accounts which are invested in the Fund are described in the
prospectuses for such accounts.
SALE AND REDEMPTION OF SHARES
Shares of the Fund are sold in a continuous offering and currently may be
purchased only by Separate Accounts of First Allmerica or its subsidiaries. The
Separate Accounts are the funding mechanisms for variable annuity contracts and
variable life insurance policies. Shares of the Fund are sold at their net asset
value as next computed after receipt of the purchase order without the addition
of any selling commission or "sales load." The Distributor, Allmerica
Investments, Inc., at its expense, may provide promotional incentives to dealers
that sell variable annuity contracts for which the Fund serves as an investment
vehicle.
Shares of the Fund are also currently being issued under separate prospectuses
to Separate Accounts of Allmerica Financial Life, First Allmerica and
subsidiaries of First Allmerica which issue variable or group annuity policies
or variable life insurance policies ("mixed funding"). Although neither
Allmerica Financial Life nor the Trust currently foresees any disadvantage, it
is conceivable that in the future such mixed funding may be disadvantageous for
variable or group annuity policyowners or variable life insurance policyowners
("Policyowners"). The Trustees of the Trust intend to monitor events in order to
identify any conflicts that may arise between such Policyowners and to determine
what action, if any, should be taken in response thereto. If the Trustees were
to conclude that separate funds should be established for variable annuity and
variable life separate accounts, Allmerica Financial Life will pay the attendant
expenses. The Trust has filed an application with the SEC for an exemptive order
to permit Fund shares to be sold to variable annuity and life insurance separate
accounts of both affiliated and unaffiliated life insurance companies and
qualified pension and retirement plans outside of the separate account context.
If the requested order is granted, any Fund may serve as a funding vehicle for
all types of variable annuity contracts and variable life insurance contracts
offered by various participating insurance companies and for qualified plans;
material irreconcilable conflicts may possibly arise among various contract
owners and plan participants and the Board of Trustees will monitor events in
order to identify the existence of any material irreconcilable conflict and
determine what action, if any, should be taken in response to such conflict.
The Trust redeems shares of the Fund at net asset value as next computed after
receipt of a request for redemption. No fee is charged by the Trust on
redemption. The variable contracts funded through the Separate Accounts are sold
subject to certain fees and charges, which may include sales and redemption
charges, as described in the prospectuses for such Separate Accounts.
8
- ---------------------------
Allmerica Investment Trust
<PAGE>
Redemption payments will be paid within seven days after receipt by the Trust
of a written request, except that the right of redemption may be suspended or
payments postponed whenever permitted by applicable law and regulations.
HOW IS PERFORMANCE DETERMINED?
The Fund's performance may be quoted in advertising. The Fund's performance
may be compared with the performance of other investments or relevant indices.
All performance information is based on historical results and is not intended
to indicate future performance.
For the Fund, "yield" represents an annualization of the change in value of an
investment (excluding any capital changes) in the Fund for a specific seven-day
period; "effective yield" compounds that yield for a year and is, for that
reason, greater than the Fund's yield.
Total return is based on the overall dollar or percentage change in value of a
hypothetical investment in the Fund assuming all dividends and capital gain
distributions are reinvested. Cumulative total return reflects the Fund's
performance over a stated period of time. Average annual total return reflects
the hypothetical, annually-compounded return that would have produced the same
cumulative return if the Fund's performance had been constant over the entire
period. Because average annual returns tend to smooth out variations in the
Fund's return, they are not the same as actual year-by-year results.
YIELDS AND TOTAL RETURNS QUOTED FOR THE FUND INCLUDE THE EFFECT OF DEDUCTING
THE FUND'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO A
PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE FUND CAN BE PURCHASED ONLY
THROUGH A VARIABLE ANNUITY CONTRACT OR VARIABLE LIFE CONTRACT, YOU SHOULD
CAREFULLY REVIEW THE PROSPECTUS FOR THE SEPARATE ACCOUNTS FOR INFORMATION ON
RELEVANT CHARGES AND EXPENSES. INCLUDING THESE CHARGES IN THE QUOTATIONS OF THE
FUND'S YIELD AND TOTAL RETURN WOULD HAVE THE EFFECT OF DECREASING PERFORMANCE.
PERFORMANCE INFORMATION FOR THE FUND MUST ALWAYS BE ACCOMPANIED BY, AND BE
REVIEWED WITH, PERFORMANCE INFORMATION FOR THE SEPARATE ACCOUNTS WHICH INVEST IN
THE FUND.
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established as a Massachusetts business trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated October 11, 1984
(the "Trust Declaration"). A copy of the Trust Declaration is on file with the
Secretary of the Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares of beneficial interest
which may be divided into an unlimited number of series of such shares, and
which are divided presently into 14 series of shares, one series underlying the
Fund. The Trust's shares are entitled to one vote per share (with proportional
voting for fractional shares). The rights accompanying Fund shares are legally
vested in the Separate Accounts. As a matter of policy, however, holders of
variable life insurance or variable annuity contracts funded through the
Separate Accounts have the right to instruct the Separate Accounts as to voting
Fund shares on all matters to be voted on by Fund shareholders. Voting rights of
the participants in the Separate Accounts are set forth more fully in the
prospectuses or offering circular relating to those Accounts. See "Organization
of the Trust" in the SAI for the definition of a "majority vote" of
shareholders.
The Trust is not required to hold annual meetings of shareholders. The
Trustees or shareholders holding at least 10% of the outstanding shares may call
special meetings of shareholders.
FUND RECORDKEEPING AGENT
Investor Services Group calculates net asset value per share and maintains
general accounting records for the Fund. Investor Services Group is entitled to
receive an annual Fund recordkeeping fee based on Fund assets and certain out-
of-pocket expenses.
CUSTODIAN
Bankers Trust Company, 130 Liberty Street, New York, New York 10006, is the
custodian of the investment securities and other assets of the Fund.
INVESTMENT RESTRICTIONS
The following is a description of certain investment restrictions which are
fundamental and may not be changed with respect to the Fund without shareholder
approval. For a description of certain other investment restrictions, reference
should be made to the SAI.
9
-----------------------------
Allmerica Investment Trust
<PAGE>
1. The Fund will not concentrate its investments in particular
industries, including debt obligations of supranational entities and foreign
governments, but it may invest up to 25% of the value of its total assets in a
particular industry. The restriction does not apply to investments in
obligations issued or guaranteed by the United States of America, its agencies
or instrumentalities, or to investments by the Fund in securities issued or
guaranteed by domestic branches of U.S. banks.
2. The Fund will not invest more than 5% of the value of its total assets
in the securities of any one issuer (other than securities issued by or
guaranteed as to principal or interest by the United States Government or any
agency or instrumentality thereof) or acquire more than 10% of the voting
securities of any one issuer.
These limitations apply as of the time of purchase. If through market action
the percentage limitations are exceeded, the Fund will not be required to reduce
the amount of its holding in such investments.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements, under which the Fund acquires
ownership of a security (ordinarily U.S. Government securities) but the seller
agrees, at the time of sale, to purchase the security at a mutually agreed upon
time and price. Should any seller of a repurchase agreement fail to repurchase
the underlying security, or should any seller become insolvent or involved in a
bankruptcy proceeding, the Fund could incur disposition costs and losses.
Repurchase Agreements maturing in more than seven days are subject to the 10%
limit on illiquid securities.
"WHEN-ISSUED" SECURITIES
The Fund may purchase securities on a when-issued or delayed delivery basis.
Delivery and payment normally take place 15 to 45 days after the commitment to
purchase. No income accrues on when-issued securities prior to delivery.
Purchase of when-issued securities involves the risk that yields available in
the market when delivery occurs may be higher than those available when the
when-issued order is placed, resulting in a decline in the market value of the
security. There is also the risk that under some circumstances the purchase of
when-issued securities may act to leverage the Fund.
LENDING OF SECURITIES
For the purpose of realizing additional income, the Fund may lend portfolio
securities to broker-dealers or financial institutions amounting to not more
than 33 1/3% of its total assets taken at current value. While any such loan is
outstanding, the Fund will continue to receive amounts equal to the interest or
dividends paid by the issuer on the securities, as well as interest (less any
rebates to be paid to the borrower) on the investment of the collateral or a fee
from the borrower. The Fund will have the right to call each loan and obtain the
securities. Lending portfolio securities involves certain risks, including
possible delays in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. Loans will be made in accordance with guidelines established by the
Board of Trustees.
FOREIGN SECURITIES
Investments in foreign markets involve substantial risks typically not
associated with investing in the U.S. which should be considered carefully by
the investor. Such risks may include political and economic instability,
differing accounting and financial reporting standards, higher commission rates
on foreign portfolio transactions, less readily available public information
regarding issuers, potentially adverse changes in tax and exchange control
regulations and the potential for restrictions on the flow of international
capital. Foreign securities also involve currency risks. The Money Market Fund
may invest only in U.S. dollar denominated foreign securities. Some foreign
securities exchanges may not be as developed or efficient as those in the United
States and securities traded on foreign securities exchanges generally are
subject to greater price volatility. There is also the possibility of adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation and limitations on the removal of funds or other assets.
Investments in emerging countries involve exposure to economic structures that
are generally less diverse and mature than in the United States, and to
political systems which may be less stable. In addition, securities of issuers
located in emerging countries may have limited marketability and may be subject
to more abrupt or erratic price fluctuations.
The Fund's investments may include ADRs. For many foreign securities, there
are U.S. dollar-denominated ADRs which are
10
- ---------------------------
Allmerica Investment Trust
<PAGE>
traded in the United States on exchanges or over the counter. ADRs represent the
right to receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. An ADR may be sponsored by the issuer of the underlying
foreign security, or it may be issued in unsponsored form. The holder of a
sponsored ADR is likely to receive more frequent and extensive financial
disclosure concerning the foreign issuer than the holder of an unsponsored ADR
and generally will bear lower transaction charges. The Fund may invest in both
sponsored and unsponsored ADRs.
RESTRICTED SECURITIES
The Fund also may purchase fixed-income securities that are not registered
under the 1933 Act ("restricted securities"), but can be offered and sold to
"qualified institutional buyers" under Rule 144A of the 1933 Act. However, the
Fund will not invest more than 10% of its assets in restricted securities (and
securities deemed to be illiquid) unless the Board of Trustees determines, based
upon a continuing review of the trading markets for the specific restricted
security, that such restricted securities are liquid. The Board of Trustees has
adopted guidelines and delegated to the Manager the daily function of
determining and monitoring liquidity of restricted securities. The Board,
however, will retain sufficient oversight and be responsible ultimately for the
determinations. Since it is not possible to predict with assurance exactly how
this market for restricted securities sold and offered under Rule 144A will
develop, the Board will monitor carefully the Fund's investments in securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities. As a result, the Fund might not be able to sell these
securities when its Sub-Adviser wishes to do so, or might have to sell them at
less than fair value. In addition, market quotations are less readily
available. Therefore, judgment at times may play a greater role in valuing
these securities than in the case of unrestricted securities.
ASSET-BACKED SECURITIES
The Fund may purchase asset-backed securities, which represent a participation
in, or are secured by and payable from, a stream of payments generated by
particular assets, frequently a pool of assets similar to one another. Assets
generating such payments include instruments such as motor vehicle installment
purchase obligations, credit card receivables and home equity loans. Payment of
principal and interest may be guaranteed for certain amounts and time periods by
a letter of credit issued by a financial institution unaffiliated with the
issuer of the securities. The estimated life of an asset-backed security varies
with the prepayment experience of the underlying debt instruments. The rate of
such prepayments, and hence the life of the asset-backed security, will be
primarily a function of current market rates, although other economic and
demographic factors will be involved. Under certain interest rate and prepayment
rate scenarios, the Funds may fail to recoup fully their investment in asset-
backed securities. The Fund will not invest more than 20% of its total assets
in asset-backed securities.
STAND-BY COMMITMENTS
Under a stand-by commitment, a dealer agrees to purchase from the Fund, at the
Fund's option, specified securities at a specified price. Stand-by commitments
are exercisable by the Fund at any time before the maturity of the underlying
security, and may be sold, transferred or assigned by the Fund only with respect
to the underlying instruments.
Although stand-by commitments are often available without the payment of any
direct or indirect consideration, if necessary or advisable, the Fund may pay
for a stand-by commitment either separately in cash or by paying a higher price
for securities which are acquired subject to the commitment.
Where the Fund pays any consideration directly or indirectly for a stand-by
commitment, its cost will be reflected as unrealized depreciation for the period
during which the commitment is held by the Fund.
The Fund will enter into stand-by commitments only with banks and broker-
dealers which present minimal credit risks. In evaluating the creditworthiness
of the issuer of a stand-by commitment, the Sub-Adviser will review periodically
the issuer's assets, liabilities, contingent claims and other relevant financial
information.
The Fund will acquire stand-by commitments solely to facilitate liquidity and
does not intend to exercise its rights thereunder for trading purposes. Stand-by
commitments will be valued at zero in determining the Fund's net asset value.
11
-----------------------------
Allmerica Investment Trust
<PAGE>
APPENDIX
Description of Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Ratings Service ("S&P"), a division of McGraw-Hill Companies, Inc.,
commercial paper ratings:
COMMERCIAL PAPER RATINGS
MOODY'S EMPLOYS THREE DESIGNATIONS, ALL JUDGED TO BE INVESTMENT GRADE, TO
INDICATE THE RELATIVE REPAYMENT CAPACITY OF RATED ISSUERS. THE TWO HIGHEST
DESIGNATIONS ARE AS FOLLOWS:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This normally
will be evidenced by many of the characteristics cited above, but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be subject more
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
S&P COMMERCIAL PAPER RATINGS ARE GRADED INTO SEVERAL CATEGORIES, RANGING FROM
"A-1" FOR THE HIGHEST QUALITY OBLIGATIONS TO "D" FOR THE LOWEST. THE TWO HIGHEST
RATING CATEGORIES ARE AS FOLLOWS:
A-1 - This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
12
- ----------------------------
Allmerican Investment Trust
<PAGE>
ALLMERICA INVESTMENT TRUST
440 LINCOLN STREET
WORCESTER, MASSACHUSETTS 01653
(508) 855-1000
Allmerica Investment Trust (the "Trust") is a professionally managed, open-end
investment company designed to provide the underlying investment vehicles for
insurance-related accounts. The fourteen separate portfolios of the Trust
(collectively, the "Funds" and individually, the "Fund") currently offered by
this Prospectus are as follows:
SELECT EMERGING MARKETS FUND
SELECT AGGRESSIVE GROWTH FUND
SELECT CAPITAL APPRECIATION FUND
SELECT VALUE OPPORTUNITY FUND
SELECT INTERNATIONAL EQUITY FUND
SELECT GROWTH FUND
SELECT STRATEGIC GROWTH FUND
GROWTH FUND
EQUITY INDEX FUND
SELECT GROWTH AND INCOME FUND
SELECT INCOME FUND
INVESTMENT GRADE INCOME FUND
GOVERNMENT BOND FUND
MONEY MARKET FUND
Currently, shares of each Fund may be purchased only by the separate accounts
("Separate Accounts") established by First Allmerica Financial Life Insurance
Company ("First Allmerica") or Allmerica Financial Life Insurance and Annuity
Company ("Allmerica Financial Life"), an indirect, wholly-owned subsidiary of
First Allmerica, for the purpose of funding variable annuity contracts and
variable life insurance policies. A particular Fund may not be available under
the variable annuity or variable life insurance policy which you have chosen.
The Prospectus of the specific insurance product you have chosen will indicate
which Funds are available and should be read in conjunction with this
Prospectus. Inclusion in this Prospectus of a Fund which is not available under
your policy is not to be considered a solicitation.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor ought to know before investing. Certain additional
information is contained in the Statement of Additional Information dated May 1,
1998 (the "SAI"), which has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference and is available upon
request without charge from the Trust, 440 Lincoln Street, Worcester, MA 01653,
(508) 855-1000.
Investment in the Funds is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Money Market Fund will be able to
maintain a stable net asset value of $1.00 per share.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY
INSTITUTION. SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC") OR ANY OTHER GOVERNMENTAL AGENCY, AND ARE SUBJECT TO VARIOUS RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DATED MAY 1, 1998
--------------------------
Allmerica Investment Trust
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
FINANCIAL HIGHLIGHTS.......................................... 3
HOW ARE THE FUNDS MANAGED?.................................... 10
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?.............. 11
Select Emerging Markets Fund................................ 11
Select Aggressive Growth Fund............................... 12
Select Capital Appreciation Fund............................ 13
Select Value Opportunity Fund.............................. 14
Select International Equity Fund............................ 15
Select Growth Fund.......................................... 15
Select Strategic Growth Fund................................ 16
Growth Fund................................................. 17
Equity Index Fund........................................... 18
Select Growth and Income Fund............................... 19
Select Income Fund.......................................... 20
Investment Grade Income Fund................................ 21
Government Bond Fund........................................ 22
Money Market Fund........................................... 22
MANAGEMENT FEES AND EXPENSES.................................. 23
FUND MANAGER INFORMATION...................................... 28
HOW ARE SHARES VALUED?........................................ 30
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS....................... 31
SALE AND REDEMPTION OF SHARES................................. 31
HOW IS PERFORMANCE DETERMINED?................................ 32
ORGANIZATION AND CAPITALIZATION OF THE TRUST.................. 32
INVESTMENT RESTRICTIONS....................................... 33
CERTAIN INVESTMENT STRATEGIES AND POLICIES.................... 33
APPENDIX...................................................... 39
</TABLE>
2
- --------------------------
Allmerica Investment Trust
<PAGE>
FINANCIAL HIGHLIGHTS
The following Financial Highlights have been audited by Price Waterhouse LLP,
independent accountants of the Trust. This information should be read in
conjunction with the financial statements and notes thereto which appear in the
Policyowner's annual report for the year ended December 31, 1997 ("Annual
Report") and which are incorporated by reference in the Trust's SAI. Further
information about the performance of the Funds is contained in the Annual Report
which may be obtained without charge from the Trust, 440 Lincoln Street,
Worcester, MA 01653, (508) 855-1000.
3
--------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED
VALUE NET GAIN (LOSS) TOTAL FROM
YEAR ENDED BEGINNING INVESTMENT ON INVESTMENT
DECEMBER 31, OF YEAR INCOME/(2)/ INVESTMENTS OPERATIONS
------------ ------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Select Aggressive
Growth Fund/(1)/
1997 $2.037 $(0.009) $ 0.387 $ 0.378
1996 1.848 (0.009) 0.351 0.342
1995 1.397 (0.001) 0.452 0.451
1994 1.431 (0.002) (0.032) (0.034)
1993 1.197 0.001 0.234 0.235
1992 1.000 0.001 0.197 0.198
Select Capital
Appreciation Fund/(1)/
1997 1.485 (0.005) 0.218 0.213
1996 1.369 (0.003) 0.124 0.121
1995 1.000 (0.001) 0.397 0.396
Select Value
Opportunity Fund/(1)/
1997 1.511 0.010 0.364 0.374
1996 1.238 0.011 0.342 0.353
1995 1.089 0.009 0.183 0.192
1994 1.170 0.005 (0.081) (0.076)
1993 1.000 0.002 0.176 0.178
Select International
Equity Fund/(1)/
1997 1.356 0.015 0.049 0.064
1996 1.136 0.011 0.238 0.249
1995 0.963 0.013 0.176 0.189
1994 1.000 0.003 (0.038) (0.035)
Select Growth
Fund/(1)/
1997 1.430 0.006 0.480 0.486
1996 1.369 0.005 0.297 0.302
1995 1.099 -- 0.270 0.270
1994 1.119 0.003 (0.020) (0.017)
1993 1.111 0.001 0.008 0.009
1992 1.000 0.001 0.111 0.112
<CAPTION>
LESS DISTRIBUTIONS
-----------------------------------------------------------
NET
DISTRIBUTIONS INCREASE
DIVIDENDS FROM NET (DECREASE)
FROM NET REALIZED DISTRIBUTIONS RETURN IN
YEAR ENDED INVESTMENT CAPITAL IN OF TOTAL NET ASSET
DECEMBER 31, INCOME GAINS EXCESS CAPITAL DISTRIBUTIONS VALUE
------------ ------ ----- ------ -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Select Aggressive
Growth Fund/(1)/
1997 $ -- $(0.182) $(0.008)/(3)/ -- $(0.190) $ 0.188
1996 -- (0.153) -- -- (0.153) 0.189
1995 -- -- -- -- -- 0.451
1994 -- -- -- -- -- (0.034)
1993 (0.001) -- -- -- (0.001) 0.234
1992 (0.001) -- -- -- (0.001) 0.197
Select Capital
Appreciation Fund/(1)/
1997 -- -- -- -- -- 0.213
1996 -- (0.005) -- -- (0.005) 0.116
1995 -- (0.027) -- -- (0.027) 0.369
Select Value
Opportunity Fund/(1)/
1997 (0.010) (0.249) -- -- (0.259) 0.115
1996 (0.011) (0.069) -- -- (0.080) 0.273
1995 (0.009) (0.033) (0.001)/(3)/ -- (0.043) 0.149
1994 (0.005) -- -- -- (0.005) (0.081)
1993 (0.002) (0.006) -- -- (0.008) 0.170
Select International
Equity Fund/(1)/
1997 (0.019) (0.046) (0.014)/(4)/ -- (0.079) (0.015)
1996 (0.012) (0.003) (0.014)/(4)/ -- (0.029) 0.220
1995 (0.011) (0.005) -- -- (0.016) 0.173
1994 (0.001) (0.001) -- -- (0.002) (0.037)
Select Growth
Fund/(1)/
1997 (0.006) (0.099) -- -- (0.105) 0.381
1996 (0.005) (0.236) -- -- (0.241) 0.061
1995 -- -- -- -- -- 0.270
1994 (0.003) -- -- -- (0.003) (0.020)
1993 (0.001) -- -- -- (0.001) 0.008
1992 (0.001) -- -- -- (0.001) 0.111
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not Annualized
(A) Including reimbusements, waivers, and reductions.
(B) Excluding reductions. Certain Portfolios have entered into varying
arrangements with brokers who reduced a portion of the Portfolio's expenses.
(C) Excluding reimbursements and reductions.
(D) For fiscal years beginning on or after September 1, 1995, a Portfolio is
required to disclose its average commission rate per share for trades for
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
(1) The Select Aggressive Growth Fund commenced operations on August 21, 1992.
The Select Capital Appreciation Fund commenced operations on April 28, 1995.
The Select Value Opportunity Fund (formerly the Small-Mid Cap Value Fund)
commenced operations on April 30, 1993 and changed investment sub-adviser on
January 1, 1997. The Select International Equity Fund commenced operations
on May 2, 1994. The Select Growth Fund commenced operations on August
21, 1992 and changed investment sub-adviser on July 1, 1996.
(2) Net investment income per share before reimbursement of fees by the
investment adviser or reductions were $(0.010) in 1997, $0.000 in 1993 and
$(0.001) in 1992 for Select Aggressive Growth Fund; $(0.001) in 1995 for
Select Capital Appreciation Fund; $0.009 in 1997, $0.010 in 1996, $0.005 in
1994 and $(0.001) in 1993 for Select Value Opportunity Fund; $0.015 in 1997,
$0.011 in 1996 and $0.002 in 1994 for Select International Equity Fund; and
$0.006 in 1997, $0.005 in 1996, $0.001 in 1993 and $0.000 in 1992 for Select
Growth Fund.
(3) Distributions in excess of net realized capital gains.
(4) Distributions in excess of net investment income.
4
- --------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
--------------------------------------------------------------
NET ASSET NET ASSETS
VALUE END OF NET PORTFOLIO AVERAGE
END OF TOTAL YEAR INVESTMENT OPERATING EXPENSES MANAGEMENT FEES TURNOVER COMMISSIONS
YEAR RETURN (000'S) INCOME (A) (B) (C) GROSS NET RATE RATE/(D)/
---- ------ ------- ------ --- --- --- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2.225 18.71% $604,123 (0.45)% 0.99% 1.04% 1.04% 0.95% 0.95% 95% $0.0617
2.037 18.55% 407,442 (0.53)% 1.08% 1.08% 1.08% 1.00% 1.00% 113% 0.0597
1.848 32.28% 254,872 (0.07)% 1.09% -- 1.09% 1.00% 1.00% 104% --
1.397 (2.31)% 136,573 (0.21)% 1.16% -- 1.16% 1.00% 1.00% 100% --
1.431 19.51% 66,251 0.10% 1.19% -- 1.23% 1.00% 0.96% 76% --
1.197 19.85%** 9,270 0.34%* 1.35%* -- 1.88%* N/A N/A 33% --
1.698 14.28% 240,526 (0.38)% 1.13% 1.13% 1.13% 0.98% 0.98% 133% 0.0444
1.485 8.80% 142,680 (0.32)% 1.13% 1.13% 1.13% 1.00% 1.00% 98% 0.0414
1.369 39.56%** 41,376 (0.25)%* 1.35%* -- 1.42%* 1.00%* 0.93%* 95% --
1.626 24.85% 202,139 0.73% 0.98% 1.04% 1.06% 0.92% 0.90% 110% 0.0587
1.511 28.53% 113,969 0.91% 0.95% 0.97% 0.97% 0.85% 0.85% 20% 0.0497
1.238 17.60% 64,575 0.86% 1.01% -- 1.01% 0.85% 0.85% 17% --
1.089 (6.51)% 41,342 0.64% 1.08% -- 1.09% 0.85% 0.84% 4% --
1.170 17.74%** 12,731 0.52%* 1.22%* -- 2.03%* 0.85%* 0.04%* 8% --
1.341 4.65% 397,915 1.17% 1.15% 1.17% 1.17% 0.97% 0.97% 20% 0.0229
1.356 21.94% 246,877 1.22% 1.20% 1.23% 1.23% 1.00% 1.00% 18% 0.0248
1.136 19.63% 104,312 1.68% 1.24% -- 1.24% 1.00% 1.00% 24% --
0.963 (3.49)%** 40,498 0.87%* 1.50%* -- 1.78%* 1.00%* 0.72%* 19% --
1.811 34.06% 470,356 0.42% 0.91% 0.93% 0.93% 0.85% 0.85% 75% 0.0470
1.430 22.02% 228,551 0.38% 0.92% 0.93% 0.93% 0.85% 0.85% 159% 0.0457
1.369 24.59% 143,125 0.02% 0.97% -- 0.97% 0.85% 0.85% 51% --
1.099 (1.49)% 88,263 0.37% 1.03% -- 1.03% 0.85% 0.85% 55% --
1.119 0.84% 53,854 0.15% 1.05% -- 1.08% 0.85% 0.82% 65% --
1.111 11.25%** 9,308 0.40%* 1.20%* -- 1.72%* N/A N/A 3% --
</TABLE>
5
--------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------------------
NET REALIZED
NET AND
ASSET UNREALIZED
VALUE NET GAIN (LOSS) TOTAL FROM
YEAR ENDED BEGINNING INVESTMENT ON INVESTMENT
DECEMBER 31, OF YEAR INCOME/(2)/ INVESTMENTS OPERATIONS
------------ ------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Growth Fund/(1)/
1997 $2.333 $0.039 $ 0.540 $ 0.579
1996 2.176 0.047 0.386 0.433
1995 1.814 0.049 0.539 0.588
1994 1.939 0.043 (0.041) 0.002
1993 2.034 0.039 0.095 0.134
1992 1.976 0.034 0.105 0.139
1991 1.471 0.038 0.548 0.586
1990 1.558 0.041 (0.047) (0.006)
1989 1.308 0.043 0.289 0.332
1988 1.147 0.037 0.200 0.237
Equity Index Fund/(1)/
1997 2.165 0.034 0.664 0.698
1996 1.827 0.035 0.370 0.405
1995 1.468 0.035 0.474 0.509
1994 1.505 0.033 (0.018) 0.015
1993 1.409 0.032 0.102 0.134
1992 1.354 0.030 0.066 0.096
1991 1.080 0.032 0.279 0.311
1990 1.000 0.009 0.080 0.089
Select Growth and
Income Fund/(1)/
1997 1.405 0.020 0.293 0.313
1996 1.268 0.020 0.246 0.266
1995 1.027 0.019 0.290 0.309
1994 1.069 0.025 (0.018) 0.007
1993 0.990 0.023 0.079 0.102
1992 1.000 0.008 (0.009) (0.001)
Select Income Fund/(1)/
1997 0.995 0.060 0.028 0.088
1996 1.024 0.061 (0.029) 0.032
1995 0.930 0.060 0.095 0.155
1994 1.035 0.055 (0.105) (0.050)
1993 0.988 0.052 0.055 0.107
1992 1.000 0.018 (0.012) 0.006
<CAPTION>
LESS DISTRIBUTIONS
----------------------------------------------------------
NET
DISTRIBUTIONS INCREASE
DIVIDENDS FROM NET (DECREASE)
FROM NET REALIZED DISTRIBUTIONS IN
YEAR ENDED INVESTMENT CAPITAL IN RETURN OF TOTAL NET ASSET
DECEMBER 31, INCOME GAINS EXCESS CAPITAL DISTRIBUTIONS VALUE
------------ ------ ----- ------ ------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Growth Fund/(1)/
1997 $(0.038) $(0.458) $ -- $ -- $(0.496) $ 0.083
1996 (0.048) (0.228) -- -- (0.276) 0.157
1995 (0.049) (0.177) -- -- (0.226) 0.362
1994 (0.043) (0.084) -- -- (0.127) (0.125)
1993 (0.039) (0.180) -- (0.010) (0.229) (0.095)
1992 (0.034) (0.047) -- -- (0.081) 0.058
1991 (0.039) (0.042) -- -- (0.081) 0.505
1990 (0.041) (0.040) -- -- (0.081) (0.087)
1989 (0.046) (0.036) -- -- (0.082) 0.250
1988 (0.037) (0.039) -- -- (0.076) 0.161
Equity Index Fund/(1)/
1997 (0.033) (0.077) -- -- (0.110) 0.588
1996 (0.035) (0.032) -- -- (0.067) 0.338
1995 (0.035) (0.047) (0.002)/(3)/ (0.066) (0.150) 0.359
1994 (0.033) (0.019) -- -- (0.052) (0.037)
1993 (0.031) (0.007) -- -- (0.038) 0.096
1992 (0.031) (0.010) -- -- (0.041) 0.055
1991 (0.032) (0.005) -- -- (0.037) 0.274
1990 (0.009) -- -- -- (0.009) 0.080
Select Growth and
Income Fund/(1)/
1997 (0.020) (0.146) -- -- (0.166) 0.147
1996 (0.020) (0.109) -- -- (0.129) 0.137
1995 (0.019) (0.049) -- -- (0.068) 0.241
1994 (0.025) (0.017) (0.007)/(3)/ -- (0.049) (0.042)
1993 (0.023) -- -- -- (0.023) 0.079
1992 (0.008) (0.001) -- -- (0.009) (0.010)
Select Income Fund/(1)/
1997 (0.061) -- -- -- (0.061) 0.027
1996 (0.061) -- -- -- (0.061) (0.029)
1995 (0.060) -- (0.001)/(4)/ -- (0.061) 0.094
1994 (0.055) -- -- -- (0.055) (0.105)
1993 (0.052) (0.008) -- -- (0.060) 0.047
1992 (0.018) -- -- -- (0.018) (0.012)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not Annualized
(A) Including reimbursements and reductions.
(B) Excluding reductions. Certain Portfolios have entered into varying
arrangements with brokers who reduced a portion of the Portfolio's expenses.
(C) Excluding reimbursements and reductions.
(D) For fiscal years beginning on or after September 1, 1995, a Portfolio is
required to disclose its average commission rate per share for trades for
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
(1) The Equity Index Fund commenced operations on September 28, 1990. The Select
Growth and Income Fund and Select Income Fund commenced operations on August
21, 1992. The Growth Fund changed Investment Sub-Adviser on April 1, 1988.
(2) Net investment income per share before reimbursement of fees by the
investment adviser or reductions were $0.038 in 1997, $0.046 in 1996 and
$0.038 in 1993 for Growth Fund; $0.031 in 1993, $0.028 in 1992, and $0.031
in 1991 for Equity Index Fund; $0.019 in 1997, $0.019 in 1996, $0.023 in
1993 and $0.005 in 1992 for Select Growth and Income Fund; and $0.060 in
1995, $0.055 in 1994, $0.050 in 1993, and $0.015 in 1992 for Select Income
Fund.
(3) Distributions in excess of net realized capital gains.
(4) Distributions in excess of net investment income.
(5) Unaudited.
6
- --------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------
NET ASSET NET ASSETS
VALUE END OF NET
END OF TOTAL YEAR INVESTMENT OPERATING EXPENSES
YEAR RETURN (000'S) INCOME (A)
---- ------ ------- ------ ---
<S> <C> <C> <C> <C>
$ 2.416 25.14% $728,679 1.48% 0.47%
2.333 20.19% 556,751 2.04% 0.48%
2.176 32.80% 444,871 2.34% 0.54%
1.814 0.16% 335,714 2.25% 0.56%
1.939 6.66% 338,545 1.92% 0.54%
2.034 7.11% 270,828 1.85% 0.58%
1.976 40.44% 182,965 2.26% 0.57%
1.471 (0.30)% 97,179 2.82% 0.60%
1.558 25.64% 76,783 2.98% 0.71%
1.308 20.80%/(5)/ 52,439 2.93% 0.75%
2.753 32.41% 297,191 1.38% 0.44%
2.165 22.30% 151,130 1.79% 0.46%
1.827 36.18% 90,889 1.96% 0.55%
1.468 1.06% 52,246 2.25% 0.57%
1.505 9.53% 42,842 2.28% 0.57%
1.409 7.25% 22,393 2.47% 0.57%
1.354 29.16% 9,700 2.73% 0.55%
1.080 8.90%** 5,469 3.39%* 0.38%*
1.552 22.51% 473,552 1.34% 0.77%
1.405 21.26% 295,638 1.44% 0.80%
1.268 30.32% 191,610 1.69% 0.85%
1.027 0.73% 110,213 2.51% 0.91%
1.069 10.37% 60,518 2.73% 0.99%
0.990 (0.11)%** 7,302 3.20%* 1.10%*
1.022 9.17% 104,253 6.12% 0.72%
0.995 3.32% 77,498 6.29% 0.74%
1.024 16.96% 60,368 6.24% 0.79%
0.930 (4.82)% 40,784 6.07% 0.83%
1.035 10.95% 25,302 5.91% 0.91%
0.988 0.62%** 5,380 5.38%* 1.00%*
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------------
PORTFOLIO AVERAGE
OPERATING EXPENSES MANAGEMENT FEES TURNOVER COMMISSIONS
(B) (C) GROSS NET RATE RATE/(D)/
--- --- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C>
0.49% 0.49% 0.43% 0.43% 79% $0.0575
0.51% 0.51% 0.44% 0.44% 72% 0.0576
-- 0.54% 0.46% 0.46% 64% --
-- 0.56% 0.48% 0.48% 46% --
-- 0.55% 0.49% 0.48% 42% --
-- 0.58% N/A N/A 19% --
-- 0.57% N/A N/A 24% --
-- 0.60% N/A N/A 39% --
-- 0.71% N/A N/A 33% --
-- 0.75% N/A N/A 99% --
0.44% 0.44% 0.31% 0.31% 9% 0.0385
0.46% 0.46% 0.32% 0.32% 12% 0.0395
-- 0.55% 0.34% 0.34% 8% --
-- 0.57% 0.35% 0.35% 7% --
-- 0.63% 0.35% 0.29% 4% --
-- 0.75% N/A N/A 6% --
-- 0.64% N/A N/A 6% --
-- 0.38%* N/A N/A 0.24% --
0.80% 0.80% 0.73% 0.73% 71% 0.0569
0.83% 0.83% 0.75% 0.75% 78% 0.0563
-- 0.85% 0.75% 0.75% 112% --
-- 0.91% 0.75% 0.75% 107% --
-- 1.03% 0.75% 0.71% 25% --
-- 2.37%* N/A N/A 4% --
0.72% 0.72% 0.59% 0.59% 79% --
0.74% 0.74% 0.60% 0.60% 108% --
-- 0.80% 0.60% 0.59% 131% --
-- 0.85% 0.60% 0.58% 105% --
-- 1.08% 0.60% 0.43% 171% --
-- 1.67%* N/A N/A 119% --
</TABLE>
7
--------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------------------ -------------------------------
NET REALIZED
NET AND DISTRIBUTIONS
ASSET UNREALIZED DIVIDENDS FROM NET
VALUE NET GAIN (LOSS) TOTAL FROM FROM NET REALIZED
YEAR ENDED BEGINNING INVESTMENT ON INVESTMENT INVESTMENT CAPITAL
DECEMBER 31, OF YEAR INCOME/(4)/ INVESTMENTS OPERATIONS INCOME GAINS
------------ ------ ---------- ----------- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Investment Grade
Income Fund/(1)/
1997 $1.084 $0.071 $ 0.028 $ 0.099 $(0.071) $ --
1996 1.117 0.070 (0.033) 0.037 (0.070) --
1995 1.012 0.071 0.106 0.177 (0.071) --
1994 1.111 0.066 (0.099) (0.033) (0.066) --
1993 1.074 0.065 0.049 0.114 (0.065) (0.012)
1992 1.085 0.075 0.013 0.088 (0.075) (0.024)
1991 1.004 0.080 0.081 0.161 (0.080) --
1990 1.011 0.083 (0.006) 0.077 (0.084) --
1989 0.968 0.082 0.044 0.126 (0.083) --
1988 0.974 0.084 (0.006) 0.078 (0.084) --
Government
Bond Fund/(1)/
1997 1.036 0.061 0.011 0.072 (0.061) --
1996 1.062 0.062 (0.026) 0.036 (0.062) --
1995 0.997 0.062 0.066 0.128 (0.062) --
1994 1.070 0.063 (0.073) (0.010) (0.063) --
1993 1.051 0.055 0.024 0.079 (0.055) (0.003)
1992 1.047 0.057 0.009 0.066 (0.057) (0.005)
1991 1.000 0.022 0.051 0.073 (0.022) (0.004)
Money Market
Fund
1997 1.000 0.053 -- 0.053 (0.053) --
1996 1.000 0.052 -- 0.052 (0.052) --
1995 1.000 0.057 -- 0.057 (0.057) --
1994 1.000 0.039 -- 0.039 (0.039) --
1993 1.000 0.030 -- 0.030 (0.030) --
1992 1.000 0.037 -- 0.037 (0.037) --
1991 1.000 0.060 -- 0.060 (0.060) --
1990 1.000 0.078 -- 0.078 (0.078) --
1989 1.000 0.086 -- 0.086 (0.086) --
1988 1.000 0.071 -- 0.071 (0.071) --
<CAPTION>
LESS DISTRIBUTIONS
---------------------------
NET
INCREASE
(DECREASE)
DISTRIBUTIONS IN
YEAR ENDED IN RETURN OF TOTAL NET ASSET
DECEMBER 31, EXCESS CAPITAL DISTRIBUTIONS VALUE
------------ ------ ------- ------------- -----
<S> <C> <C> <C> <C>
Investment Grade
Income Fund/(1)/
1997 $ -- $ -- $(0.071) $ 0.028
1996 -- -- (0.070) (0.033)
1995 (0.001)/(2) -- (0.072) 0.105
1994 -- -- (0.066) (0.099)
1993 -- -- (0.077) 0.037
1992 -- -- (0.099) (0.011)
1991 -- -- (0.080) 0.081
1990 -- -- (0.084) (0.007)
1989 -- -- (0.083) 0.043
1988 -- -- (0.084) (0.006)
Government
Bond Fund/(1)/
1997 -- -- (0.061) 0.011
1996 -- -- (0.062) (0.026)
1995 (0.001)/(2)/ -- (0.063) 0.065
1994 -- -- (0.063) (0.073)
1993 -- (0.002) (0.060) 0.019
1992 -- -- (0.062) 0.004
1991 -- -- (0.026) 0.047
Money Market
Fund
1997 -- -- (0.053) --
1996 -- -- (0.052) --
1995 -- -- (0.057) --
1994 -- -- (0.039) --
1993 -- -- (0.030) --
1992 -- -- (0.037) --
1991 -- -- (0.060) --
1990 -- -- (0.078) --
1989 -- -- (0.086) --
1988 -- -- (0.071) --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not Annualized
(A) Including reimbursements and reductions.
(B) Excluding reductions. Certain Portfolios have entered into varying
arrangements with brokers who reduced a portion of the Portfolio's expenses.
(C) Excluding reimbursements and reductions.
(D) For fiscal years beginning on or after September 1, 1995, a Portfolio is
required to disclose its average commission rate per share for trades for
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
(1) The Government Bond Fund commenced operations on August 26, 1991. The
Investment Grade Income Fund was formerly known as Income Appreciation Fund.
(2) Distributions in excess of net investment income.
(3) Unaudited.
(4) Net investment income per share before reimbursement of fees by the
investment adviser were $0.065 in 1993 for Investment Grade Income Fund;
$0.055 in 1993 and $0.056 in 1992 for Government Bond Fund; and $0.030 in
1993 and $0.084/(3)/ in 1988 for Money Market Fund.
8
- --------------------------
Allmerica Investment Trust
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------------------------------------
NET ASSET NET ASSETS
VALUE END OF NET PORTFOLIO AVERAGE
END OF TOTAL YEAR INVESTMENT OPERATING EXPENSES MANAGEMENT FEES TURNOVER COMMISSIONS
YEAR RETURN (000'S) INCOME (A) (B) (C) GROSS NET RATE RATE/(D)/
---- ------ ------- ------ --- --- --- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.112 9.45% $189,503 6.48% 0.51% 0.51% 0.51% 0.41% 0.41% 48% $--
1.084 3.56% 157,327 6.50% 0.52% 0.52% 0.52% 0.40% 0.40% 108% --
1.117 17.84% 141,625 6.66% 0.53% -- 0.53% 0.41% 0.41% 126% --
1.012 (2.96)% 109,972 6.25% 0.58% -- 0.58% 0.42% 0.42% 129% --
1.111 10.80% 107,124 6.16% 0.54% -- 0.55% 0.45% 0.44% 55% --
1.074 8.33% 52,874 7.25% 0.59% -- 0.59% N/A N/A 71% --
1.085 16.75% 29,018 8.10% 0.60% -- 0.60% N/A N/A 52% --
1.004 8.02% 18,226 9.14% 0.56% -- 0.56% N/A N/A 5% --
1.011 13.52% 13,171 8.67% 0.78% -- 0.78% N/A N/A 4% --
0.968 8.20%/(3)/ 8,951 8.57% 0.77% -- 0.77% N/A N/A 12% --
1.047 7.08% 55,513 5.92% 0.67% 0.67% 0.67% 0.50% 0.50% 56% --
1.036 3.51% 46,396 5.90% 0.66% 0.66% 0.66% 0.50% 0.50% 112% --
1.062 13.06% 45,778 5.91% 0.69% -- 0.69% 0.50% 0.50% 180% --
0.997 (0.88)% 42,078 5.60% 0.70% -- 0.70% 0.50% 0.50% 106% --
1.070 7.51% 77,105 5.51% 0.61% -- 0.62% 0.50% 0.49% 35% --
1.051 6.59% 33,689 6.13% 0.68% -- 0.69% N/A N/A 67% --
1.047 7.60%** 7,591 5.55%* 0.54%* -- 0.54%* N/A N/A 65% --
1.000 5.47% 260,620 5.33% 0.35% 0.35% 0.35% 0.27% 0.27% N/A --
1.000 5.36% 217,256 5.22% 0.34% 0.34% 0.34% 0.28% 0.28% N/A --
1.000 5.84% 155,211 5.68% 0.36% -- 0.36% 0.29% 0.29% N/A --
1.000 3.93% 95,991 3.94% 0.45% -- 0.45% 0.31% 0.31% N/A --
1.000 3.00% 71,052 2.95% 0.42% -- 0.43% 0.32% 0.31% N/A --
1.000 3.78% 64,506 3.65% 0.44% -- 0.44% N/A N/A N/A --
1.000 6.67% 39,909 5.98% 0.43% -- 0.43% N/A N/A N/A --
1.000 8.63% 28,330 8.22% 0.42% -- 0.42% N/A N/A N/A --
1.000 9.69% 12,060 8.62% 0.58% -- 0.58% N/A N/A N/A --
1.000 7.30%/(3)/ 7,156 7.13% 0.60% -- 0.71% N/A N/A N/A --
</TABLE>
9
--------------------------
Allmerica Investment Trust
<PAGE>
HOW ARE THE FUNDS MANAGED?
The overall responsibility for the supervision of the affairs of the Trust
vests in the Board of Trustees of the Trust which meets on a quarterly basis.
Allmerica Financial Investment Management Services, Inc. (the "Manager") is
responsible for the management of the Trust's day-to-day business affairs and
has general responsibility for the management of the investments of the Funds.
The Manager, at its expense, has contracted with certain Sub-Advisers to manage
the investments of the Funds, subject to the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act").
The Manager is an indirect, wholly-owned subsidiary of Allmerica Financial
Corporation ("AFC"), a Delaware holding company for a group of affiliated
companies, the largest of which is First Allmerica, a life insurance company
organized in Massachusetts in 1844. The Manager, AFC and First Allmerica are
located at 440 Lincoln Street, Worcester, Massachusetts 01653. The Manager
succeeded Allmerica Investment Management Company, Inc. ("AIMCO") as manager of
the Trust on April 16, 1998. As part of a reorganization, AIMCO transferred to
the Manager that portion of its business relating to the provision of investment
advisory services exclusively to investment companies registered under the 1940
Act such as the Trust while AIMCO retained its financial planning business. The
same personnel and procedures previously employed by AIMCO to service the Trust
will be used by the Manager. The Manager also serves as investment manager of
the Palladian Trust, another open-end investment management company.
The Manager has entered into Sub-Adviser Agreements for the management of the
investments of each of the Funds. Each Sub-Adviser, which has been selected on
the basis of various factors including management experience, investment
techniques, and staffing, is authorized to engage in portfolio transactions on
behalf of the applicable Fund subject to such general or specific instructions
as may be given by the Trustees and/or the Manager. The terms of a Sub-Adviser
Agreement cannot be changed materially without the approval of a majority
interest of the shareholders of the affected Fund. The Trust and Manager have
filed an application with the SEC for an order of exemption that would permit
the Manager to enter into and materially amend sub-advisory agreements with non-
affiliated Sub-Advisers without obtaining shareholder approval. If the requested
relief is granted by the SEC, the Manager will have the ability, subject to
approval of the Trustees, to hire and terminate Sub-Advisers to the Funds and to
change materially the terms of the Sub-Advisory Agreements, including the
compensation paid to the Sub-Advisers, without the approval of the shareholders
of the Funds. The Sub-Advisers have been selected by the Manager and Trustees in
consultation with BARRA RogersCasey, Inc. ("BARRA RogersCasey"), a pension
consulting firm. BARRA RogersCasey is wholly controlled by BARRA, Inc. The cost
of such consultation is borne by the Manager.
BARRA RogersCasey provides consulting services to pension plans representing
hundreds of billions of dollars in total assets and, in its consulting capacity,
monitors the investment performance of over 1,000 investment advisers. As a
consultant, BARRA RogersCasey has no decision-making authority with respect to
the Funds, and is not responsible for advice provided by the Manager or the Sub-
Advisers. From time to time, specific clients of BARRA RogersCasey and the Sub-
Advisers will be named in sales materials.
Ongoing performance of the Sub-Advisers is reviewed and evaluated by a
committee of the Board of Trustees, which also includes members who are officers
of First Allmerica or its affiliates, in consultation with BARRA RogersCasey.
Historical performance data for all Funds is set forth under "Financial
Highlights." The Manager is responsible for the payment of all fees to the Sub-
Advisers. The Sub-Advisers for each of the Funds are as follows:
<TABLE>
<S> <C>
Select Emerging Markets Fund Schroder Capital Management International Inc.
Select Aggressive Growth Fund Nicholas-Applegate Capital Management, L.P.
Select Capital Appreciation Fund T. Rowe Price Associates, Inc.*
Select Value Opportunity Fund Cramer Rosenthal McGlynn, LLC**
Select International Equity Fund Bank of Ireland Asset Management (U.S.) Limited
Select Growth Fund Putnam Investment Management, Inc.
Select Strategic Growth Fund Cambiar Investors, Inc.
Growth Fund Miller Anderson & Sherrerd, LLP
Equity Index Fund Allmerica Asset Management, Inc.
Select Growth and Income Fund John A. Levin & Co., Inc.
Select Income Fund Standish, Ayer & Wood, Inc.
Investment Grade Income Fund Allmerica Asset Management, Inc.
Government Bond Fund Allmerica Asset Management, Inc.
Money Market Fund Allmerica Asset Management, Inc.
</TABLE>
10
- --------------------------
Allmerica Investment Trust
<PAGE>
- -------------------------------
* T. Rowe Price Associates, Inc. assumed Sub-Adviser responsibilities from
Janus Capital Corporation on April 1, 1998. The Sub-Adviser Agreement between T.
Rowe Price Associates, Inc. and the Manager is subject to shareholder approval
at a meeting scheduled for June 3, 1998.
** Cramer Rosenthal McGlynn, LLC assumed Sub-Adviser responsibilities from CRM
Advisors, LLC on January 2, 1998.
For a sample listing of certain of the Sub-Advisers' clients, see "Investment
Management and Other Services" in the SAI. For more information on each of the
Sub-Advisers, see "What Are the Investment Objectives and Policies?" and "Fund
Manager Information."
The Manager also has entered into an Administrative Services Agreement with
First Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-
owned subsidiary of First Data Corporation, whereby Investor Services Group
performs administrative services for each of the Funds and is entitled to
receive an administrative fee and certain out-of-pocket expenses. The Manager is
responsible for the payment of the administrative fee to Investor Services
Group.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
Each Fund has a separate investment objective and policies designed to meet
different investment and financial needs, as described below. There is no
assurance that a Fund will achieve its investment objective.
A Fund's investment objective and investment policies are not fundamental and
may be changed without shareholder approval.
SELECT EMERGING MARKETS FUND
Investment Objective: The Select Emerging Markets Fund seeks long-term growth
of capital by investing in the world's emerging markets.
Sub-Adviser: Schroder Capital Management International Inc. ("SCMI") serves as
Sub-Adviser to the Select Emerging Markets Fund. SCMI, a wholly-owned U.S.
subsidiary of Schroders U.S. Holdings, Inc., the indirect wholly-owned U.S.
subsidiary of Schroders plc, was organized in 1980 as an investment adviser and
had more than $25 billion in assets under management as of December 31, 1997.
SCMI provides global equity and fixed income management services to North
American state and local governments, corporations, endowments, foundations,
investment companies and family trusts. Its main U.S. offices are located at
787 Seventh Avenue, New York, New York 10019.
Investment Policies: Under normal circumstances, the Fund invests at least 65%
of its total assets in equity securities of companies that are domiciled or
primarily doing business in developing countries with emerging markets, which
include those in the Morgan Stanley Capital International Emerging Markets Free
Index ("MSCI EMF"). Investments are not limited to one or more specific regions
because the Sub-Adviser believes that emerging market investment opportunities
can be found throughout the world. The Fund ordinarily maintains investments in
at least five developing countries.
A company is considered to be domiciled in a developing country if it is
organized under the laws of, or has a principal office in, that country. A
company is considered as primarily doing business in a developing country if (i)
the company derives at least 50% of its gross revenues or profits from either
goods or services produced or sold in the developing country or (ii) at least
50% of the company's assets are situated in the developing country.
The Fund may invest in the following types of equity securities: common
stock, preferred stock, securities convertible into common stock, rights and
warrants to acquire such securities and substantially similar forms of equity
with comparable risk characteristics.
The Fund invests in those emerging markets that the Sub-Adviser believes have
strongly developing economies and potential for long-term future growth. In
selecting securities for investment in the Fund, the Sub-Adviser assesses the
general attractiveness of specific countries based on an analysis of various
factors, including political stability, financial practices, economic prospects,
interest rates and inflation, general market valuations and potential currency
movements. Investments are made in those companies that the Sub-Adviser believes
are best positioned and managed to achieve above-average growth.
11
--------------------------
Allmerica Investment Trust
<PAGE>
The Fund may also invest up to 35% of its total assets in debt securities of
government or corporate issuers in emerging markets, equity and debt securities
of issuers in developed countries, including the United States, and cash and
money market instruments. Some or all of the debt securities held by the Fund
may be rated below investment grade. These securities, commonly known as "junk
bonds", involve significant risks as discussed under "Certain Investment
Strategies and Policies-High Yield Securities." Emerging market debt securities
often are rated below investment grade or not rated by U.S. rating agencies.
Pending investment of proceeds from new sales of Fund shares or to meet daily
cash needs, the Fund may hold cash and money market instruments.
The Sub-Adviser may employ a temporary defensive strategy if deemed by it to
be appropriate due to economic or political conditions in emerging markets. When
using a defensive strategy, the Fund may invest up to 100% of its assets in
cash, high-quality debt securities or money market instruments of U.S. or
foreign issuers. In addition, most or all of its investments may be made in the
United States and in U.S. dollars for temporary defensive purposes.
The Fund may invest up to 15% of its net assets in securities which are
illiquid and may engage in the options and futures strategies and currency
hedging techniques described under "Certain Investment Strategies and Policies-
Options and Futures Transactions" and "Hedging Techniques and Investment
Practices."
Investing in the Fund entails a substantial degree of risk. Investors are
strongly advised to consider carefully the special risks involved in investing
in emerging markets, which are in addition to the usual risks of investing in
developed countries around the world. See "Certain Investment Strategies and
Policies-Foreign Securities." The portfolio turnover rate for the Fund may vary
greatly from year to year.
SELECT AGGRESSIVE GROWTH FUND
Investment Objective: The Select Aggressive Growth Fund seeks above-average
capital appreciation by investing primarily in common stocks of companies which
are believed to have significant potential for capital appreciation.
Sub-Adviser: Nicholas-Applegate Capital Management, L.P. ("NACM") serves as Sub-
Adviser to the Select Aggressive Growth Fund. NACM is an investment manager
supervising accounts with approximately $30 billion in total assets as of
December 31, 1997. NACM's clients are primarily major corporate employee benefit
funds, public employee retirement plans, foundations and endowment funds,
investment companies and individuals. Founded in 1984, NACM is located at 600
West Broadway, Suite 2900, San Diego, California 92101.
Investment Policies: Under normal circumstances, at least 65% of the assets of
the Select Aggressive Growth Fund will be invested in equity securities
consisting of common stocks, securities convertible into common stocks
(including bonds, notes and preferred stocks), and warrants. The Fund's assets
also may be invested in other debt securities and preferred stocks when such
securities are believed appropriate in light of the Fund's investment objective
and market conditions.
The selection of securities is made solely on the basis of their potential for
capital appreciation. Dividend and interest income from portfolio securities, if
any, is incidental to the Fund's investment objective. While investments may be
made in well-known and established companies, a significant portion of the
Fund's investments is expected to be in securities of newer and relatively
unseasoned companies or companies which represent new or changing industries.
At any given point, a substantial portion of the Fund's equity investments may
be in securities which are not listed for trading on national securities
exchanges and which, although publicly traded, may be less liquid than
securities issued by larger, more seasoned companies which trade on national
securities exchanges. Up to 15% of the Fund's net assets may be invested in
securities which are illiquid.
Securities of newer companies may be closely held with only a small portion of
their outstanding securities owned by the general public. Newer companies may
have relatively small revenue, lack depth of management and have a small share
of the market for their products or services; thus, they may be more vulnerable
to changes in economic conditions, market fluctuations and other factors
affecting the profitability or marketability of companies. Due to these and
other factors, the price movement of the securities held by the Fund can be
expected to be more volatile than is the case for the market as a whole, and the
net asset value of a share of the Fund may fluctuate significantly.
Consequently, the Fund should not be considered suitable for investors who are
unable or unwilling to assume the risk of loss inherent in an aggressive growth
portfolio, nor should investment in the Fund be considered a balanced or
complete investment program.
12
- --------------------------
Allmerica Investment Trust
<PAGE>
When NACM determines that market conditions warrant a temporary defensive
position, the Fund may invest without limitation in high-grade, fixed-income
securities or U.S. Government securities, or hold assets in cash or cash
equivalents. For hedging purposes, the Fund may engage in the options and
futures strategies described under "Certain Investment Strategies and Policies."
The Fund may also invest up to 25% of its assets in foreign securities (not
including its investments in American Depositary Receipts ("ADRs")).
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 95%. The portfolio turnover rate was the result of the Sub-
Adviser's investment process which typically results in above-average portfolio
turnover. Portfolio turnover rates may vary greatly from year to year. A high
portfolio turnover rate will likely result in greater brokerage costs to the
Fund.
SELECT CAPITAL APPRECIATION FUND
Investment Objective: The Select Capital Appreciation Fund seeks long-term
growth of capital in a manner consistent with the preservation of capital.
Realization of income is not a significant investment consideration and any
income realized on the Fund's investments will be incidental to its primary
objective.
Sub-Adviser: T. Rowe Price Associates, Inc. ("T. Rowe Price") serves as Sub-
Adviser to the Select Capital Appreciation Fund. Founded in 1937, T. Rowe Price
is a publicly held company located at 100 East Pratt Street, Baltimore, Maryland
21202. As of December 31, 1997, T. Rowe Price and its affiliates managed assets
totaling approximately $125 billion for more than five million individual and
institutional investor accounts. T. Rowe Price International Series, Inc., an
investment company managed by a T. Rowe Price affiliate, is currently used as an
investment vehicle for certain insurance products sponsored by First Allmerica
and Allmerica Financial Life. In addition, the same T. Rowe Price affiliate
currently serves as investment adviser to a corporate investment account of AFC.
Investment Policies: The Fund invests in common stocks when the Sub-Adviser
believes that the relevant market environment favors profitable investing in
those securities. The Fund pursues its objective normally by investing at least
50% of its equity assets in securities issued by medium-sized companies. Medium-
sized companies are those whose market capitalizations fall within the range of
companies in the S&P MidCap 400 Index (the "MidCap Index"). Companies whose
capitalization falls outside this range after the Fund's initial purchase
continue to be considered medium-sized companies for the purpose of this policy.
As of December 31, 1997, the MidCap Index included companies with
capitalizations between approximately $200 million to $12 billion. The range of
the MidCap Index is expected to change on a regular basis. Subject to the above
policy, the Fund may also invest in smaller or large issuers. Common stock
investments are selected in industries and companies that the Sub-Adviser
believes are experiencing favorable demand for their products and services and
which operate in a favorable competitive environment and regulatory climate. The
Sub-Adviser's analysis and selection process focuses on stocks with earnings
growth potential that may not be recognized by the market. Such securities are
selected solely for their capital growth potential; investment income is not a
consideration. Medium-sized companies may suffer more significant losses as well
as realize more substantial growth than larger issuers; thus, investments in
such companies tend to be more volatile and somewhat speculative.
The selection criteria for domestic issuers apply equally to stocks of foreign
issuers. In addition, factors such as expected levels of inflation, government
policies influencing business conditions, the outlook for currency relationships
and prospects for relative economic growth among countries, regions or
geographic areas may warrant greater consideration in selecting foreign stocks.
The Fund may invest without limitation in foreign securities. The Fund may
invest directly in foreign securities denominated in foreign currency and not
publicly traded in the United States. The Fund also may purchase foreign
securities through ADRs, European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") and other types of receipts or shares evidencing
ownership of the underlying foreign securities. In addition, the Fund may invest
indirectly in foreign securities through foreign investment funds or trusts
(including passive foreign investment companies). Certain state insurance
regulations may impose additional restrictions on the Fund's holdings of foreign
securities. Investments in foreign securities carry additional risks not present
in domestic securities. See "Certain Investment Strategies and Policies -
Foreign Securities."
Although the Fund normally invests primarily in common stocks, the Fund's cash
position may increase when the Sub-Adviser is unable to locate investment
opportunities with desirable risk/reward characteristics. The Fund also may
invest in preferred stocks, warrants, government securities, corporate bonds and
debentures, high-grade commercial paper, certificates of deposit, other debt
securities or repurchase agreements or reverse repurchase agreements when the
Sub-Adviser perceives an opportunity for capital growth from such securities or
so that the Fund may receive a return on its idle cash. The Fund also may invest
up to 35% of its assets
13
--------------------------
Allmerica Investment Trust
<PAGE>
in such lower-rated securities commonly known as "junk bonds." Fixed-income
securities rated in the fourth highest grade by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Service, a division of McGraw-Hill
Companies, Inc. ("S&P") (Baa and BBB, respectively) are investment grade but are
considered to have some speculative characteristics. Lower-rated securities or
"junk bonds" (rated Ba/BB or lower) involve the risks discussed under "Certain
Investment Strategies and Policies-High Yield Securities." When the Fund invests
in such securities, investment income will increase and may constitute a large
portion of the return realized by the Fund and the Fund probably will not
participate in market advances or declines to the extent that it would if it
remained fully invested in common stocks. Up to 15% of the Fund's net assets may
be invested in securities which are illiquid.
The Fund may invest in "special situations" from time to time. A special
situation arises when, in the opinion of the Sub-Adviser, the securities of a
particular issuer will be recognized and appreciate in value due to a specific
development with respect to that issuer. Developments creating a special
situation might include, among others, a new product or process, a technological
breakthrough, a management change or other extraordinary corporate event, or
differences in market supply of and demand for the security. Investment in
special situations may carry an additional risk of loss in the event that the
anticipated development does not occur or does not attract the expected
attention.
For hedging purposes, the Fund may engage in options and futures strategies
and may utilize forward contracts, interest rate swaps and swap-related
products. See "Certain Investment Strategies and Policies." For the fiscal year
ended December 31, 1997, the portfolio turnover rate for the Fund was 133%. The
portfolio turnover rate was the result of the investment approach of Janus
Capital Corporation ("JCC"), the Fund's previous Sub-Adviser, which typically
resulted in above-average portfolio turnover as securities were sold when the
Sub-Adviser believed the reasons for their initial purchase were no longer valid
or when it believed that the sale of a security owned by the Fund and the
purchase of another security could enhance return. JCC was replaced by T. Rowe
Price as Sub-Adviser for the Fund effective April 1, 1998. Portfolio turnover
rates may vary greatly from year to year. A high portfolio turnover rate will
likely result in greater brokerage costs to the Fund.
SELECT VALUE OPPORTUNITY FUND (FORMERLY SMALL-MID CAP VALUE FUND)
Investment Objective: The Select Value Opportunity Fund seeks long-term growth
of capital by investing primarily in a diversified portfolio of common stocks of
small and mid-size companies, whose securities at the time of purchase are
considered by the Sub-Adviser to be undervalued.
Sub-Adviser: Cramer Rosenthal McGlynn, LLC ("CRM") serves as Sub-Adviser to the
Select Value Opportunity Fund. CRM provides advisory and sub-advisory services
to mutual funds with a total of over $500 million in assets under management as
of December 31, 1997. CRM is owned by its active investment professionals,
Cramer Rosenthal McGlynn, Inc. ("Cramer Rosenthal") and WT Investments, Inc., an
indirect, wholly-owned subsidiary of Wilmington Trust Corporation. Founded in
1973, Cramer Rosenthal had over $3.7 billion in assets under management as of
December 31, 1997 and provides investment advice to individuals, state and local
government agencies, pension and profit sharing plans, trusts, estates,
endowments and other organizations. The Sub-Adviser is located at 707
Westchester Avenue, White Plains, New York 10604.
Investment Policies: A stock will be considered to be attractively valued and,
therefore, eligible for investment in the Fund, if it is trading at a price
which the Sub-Adviser believes is reasonable relative to its own past valuation
history as well as compared to a large universe of stocks selected by the Sub-
Adviser, based on one or more of the following comparisons:
1. price relative to cash flow;
2. price relative to earnings;
3. price relative to sales; and
4. price relative to assets as measured by book value.
The Select Value Opportunity Fund generally intends to invest at least 65% of
its total assets in stocks of companies with market capitalization between $200
million and $5 billion at the time of purchase and which are listed on a
national or regional exchange or over-the-counter with prices quoted daily in
the financial press. The Fund at times may invest temporarily in preferred
stocks, bonds or other defensive issues. Normally, however, the Fund will
maintain at least 80% of the portfolio in common stocks. There are no
restrictions or guidelines regarding the investment of Fund assets in shares
listed on an exchange or traded over-the-counter. The Fund may invest up to 25%
of its assets in foreign securities (not including its investments in ADRs).
The Select Value Opportunity Fund seeks investment opportunities in companies
whose stocks are trading at attractive valuations relative to the market as a
whole. The most attractive of these companies often exist among those securities
which have been out of favor, where Wall Street coverage is limited and where
there is a degree of misunderstanding or neglect resulting in low expectations.
Value investing may reduce downside risk while offering potential for capital
appreciation as a company gains favor among other investors and its stock price
rises.
14
- --------------------------
Allmerica Investment Trust
<PAGE>
The portfolio normally will be diversified among different industry sectors, but
is not an index approach. Stocks are bought as investments and generally held
for the long term, rather than as active trading vehicles.
Small-mid cap companies may present greater opportunities for capital
appreciation, but also may involve greater risk. Smaller cap companies, when
compared with larger cap companies, may be more dependent upon a single product,
have limited financial resources, have fewer securities outstanding, experience
greater price fluctuations and be somewhat less liquid than securities of larger
companies.
The Fund may invest up to 15% of its net assets in securities which are
illiquid.
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 110%. The portfolio turnover rate for the Fund may vary from year
to year. The Fund experienced such a rate of turnover due to a new Sub-Adviser
assuming responsibility for the Fund on January 1, 1997 and subsequently
repositioning the portfolio.
SELECT INTERNATIONAL EQUITY FUND
Investment Objective: The Select International Equity Fund seeks maximum long-
term total return (capital appreciation and income) primarily by investing in
common stocks of established non-U.S. companies.
Sub-Adviser: Bank of Ireland Asset Management (U.S.) Limited ("BIAM") serves as
Sub-Adviser for the Select International Equity Fund. BIAM is an indirect,
wholly-owned subsidiary of Bank of Ireland. Its main offices are at 26
Fitzwilliam Place, Dublin 2, Ireland. Its U.S. headquarters are at 20 Horseneck
Lane, Greenwich, CT 06830. Bank of Ireland provides investment management
services through a network of affiliated companies, including BIAM which
represents North American clients. As of December 31, 1997, Bank of Ireland
managed approximately $27 billion in global securities for Irish, United
Kingdom, European, Australian, South African, Canadian and U.S. clients.
Investment Policies: To achieve its objective, the Select International Equity
Fund will invest primarily in common stocks of established non-U.S. companies.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in the securities of companies domiciled in at least five foreign
countries, not including the United States. The Fund may also acquire fixed-
income debt securities. It will do so, at the discretion of BIAM, primarily for
defensive purposes. The Fund may invest up to 15% of its net assets in
securities which are illiquid.
The Fund's investments may include ADRs which may be sponsored or unsponsored
by the underlying issuer. The Fund may also utilize EDRs, which are similar to
ADRs, in bearer form, designed for use in the European securities market and
GDRs. Investments in foreign securities carry additional risks not present in
domestic securities. See "Certain Investment Strategies and Policies - Foreign
Securities." For hedging purposes, the Fund may engage in the options and
futures strategies described under "Certain Investment Strategies and Policies."
Certain state insurance regulations may impose additional restrictions on the
Fund's holdings of foreign securities.
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 20%. The portfolio turnover rate for the Fund may vary greatly from
year to year.
SELECT GROWTH FUND
Investment Objective: The Select Growth Fund seeks to achieve long-term growth
of capital by investing in a diversified portfolio consisting primarily of
common stocks selected on the basis of their long-term growth potential.
Sub-Adviser: Putnam Investment Management, Inc. ("Putnam"), One Post Office
Square, Boston, Massachusetts 02109, serves as Sub-Adviser to the Select Growth
Fund. Putnam has been an investment manager since 1937. As of December 31, 1997,
Putnam and its affiliates had assets under management of approximately $235
billion. Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., a
holding company which, other than a minority interest owned by employees, is in
turn wholly-owned by Marsh & McLennan Companies, Inc., a publicly-owned holding
company whose principal businesses are international insurance and reinsurance
brokerage, employee benefit consulting and investment management.
Investment Policies: The Select Growth Fund seeks to attain its objective by
investing in securities of companies that appear to have favorable long-term
growth characteristics. Potential for long-term growth is the determinative
factor in the selection of all portfolio
15
--------------------------
Allmerica Investment Trust
<PAGE>
securities. Although the Fund may invest in dividend-paying stocks, the
generation of current income is not an objective of the Fund. Any income that is
received is incidental to the Fund's objective of long-term growth of capital.
When choosing securities for the portfolio, the Sub-Adviser for the Select
Growth Fund focuses on companies that display strong financial characteristics
and earnings growth potential whereas the Sub-Advisers for the Select Strategic
Growth Fund and Growth Fund emphasize value-oriented characteristics as well as
growth potential.
At least 65% of the Fund's assets under normal conditions will consist of
growth-oriented common stocks. The Fund may invest in common stocks of large
well-known companies as well as smaller growth companies, which generally
include companies with a market capitalization of $500 million or less ("smaller
growth companies"). The stocks of smaller growth companies may involve a higher
degree of risk than other types of securities and the price movement of such
securities can be expected to be more volatile than is the case of the market on
the whole. The Fund may hold stocks traded on one or more of the national
exchanges as well as in the over-the-counter markets. Because opportunities for
capital growth may exist not only in new and expanding areas of the economy but
also in mature and cyclical industries, the Fund's portfolio investments are not
limited to any particular type of company or industry. The Fund may also
purchase convertible bonds and preferred stocks, warrants and debt securities if
the Fund's Sub-Adviser believes they would help achieve the Fund's objective of
long-term growth.
The Fund may invest up to 35% of its assets in both higher-rated and lower-
rated fixed-income securities in seeking its objective of long-term growth of
capital. The Fund may invest up to 15% of its assets in lower-rated securities,
commonly known as "junk bonds," which involve risks discussed under "Certain
Investment Strategies and Policies-High Yield Securities." For more information
concerning the rating categories of corporate debt securities, see the Appendix
to the Prospectus.
When the Sub-Adviser determines that market conditions warrant a temporary,
defensive position, the Fund may invest without limitation in high-grade, fixed-
income securities or U.S. Government securities, or hold assets in cash or cash
equivalents. To the extent the Fund is so invested it is not achieving its
objective to the same degree as under normal conditions. For hedging purposes,
the Fund may engage in the options and futures strategies described under
"Certain Investment Strategies and Policies."
The Select Growth Fund's objective of seeking long-term growth of capital
means that its assets generally will be subject to greater risk than may be
involved in investing in securities that are not selected for growth potential.
The Fund may invest up to 15% of its net assets in securities which are
illiquid. The Fund may also invest up to 25% of its assets in foreign securities
(not including its investments in ADRs).
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 75%. The portfolio turnover rate for the Fund may vary greatly from
year to year.
SELECT STRATEGIC GROWTH FUND
Investment Objective: The Select Strategic Growth Fund seeks long-term growth of
capital by investing primarily in common stocks of established companies.
Sub-Adviser: Cambiar Investors, Inc. ("Cambiar"), 8400 East Prentice Avenue,
Suite 460, Englewood, Colorado 80111, serves as Sub-Adviser to the Select
Strategic Growth Fund. Cambiar is a registered investment adviser that began
operations in 1973 and became a wholly-owned subsidiary of United Asset
Management Corporation in 1990. Cambiar manages portfolios for major corporate
clients, pension plans and financial institutions. As of December 31, 1997,
Cambiar had approximately $1.9 billion in assets under management.
Investment Policies: Under normal market conditions, the Fund invests at least
65% of its total assets in the common stocks of companies with a market
capitalization of more than $1 billion at the time of investment. In seeking to
achieve its objective, the Fund emphasizes investments in common stocks of well-
known companies that the Sub-Adviser believes have the potential for earnings
growth and capital appreciation.
In selecting stocks for the Fund, the Sub-Adviser seeks quality companies
selling at low relative valuation levels, experiencing unrecognized positive
developments and exhibiting high appreciation potential. Many of the stocks in
the Fund's portfolio are expected to pay regular dividends. However, in the
evaluation of a company, greater consideration normally is given to growth
potential than to dividend income. The Sub-Adviser believes that it is more
important to evaluate a company's probable future earnings, dividends,
competitive position and financial strength than simply to seek current dividend
income. While emphasis is placed on a company's prospects for future growth,
the Fund seeks stocks which are attractively priced relative to their
anticipated long-term value.
16
- --------------------------
Allmerica Investment Trust
<PAGE>
In addition to common stocks, the Fund may purchase preferred stocks, debt
securities and securities convertible into or exchangeable for common stocks if
the Sub-Adviser believes they would help achieve the Fund's objective. The Fund
may invest up to 20% of its assets in foreign securities (not including its
investments in ADRs) and up to 15% of its net assets in securities which are
illiquid. The Fund also may engage in options and futures strategies. See
"Certain Investment Strategies and Policies."
The Fund at any time may hold a portion of its assets in cash or money market
instruments. When a defensive position is deemed advisable, the Fund may
temporarily invest without limit in high-grade debt securities, securities of
the U.S. Government and its agencies and money market instruments, or retain
cash.
The Fund is not restricted as to portfolio turnover and will make changes in
its portfolio from time to time based on market prices, economic conditions and
other factors. The Fund generally attempts to avoid speculative securities.
The companies in which the Fund invests typically have a large number of
publicly held shares and a high trading volume, resulting in a high degree of
liquidity. The value of the Fund's investments fluctuates in response to many
factors, including activities of individual companies and general market and
economic conditions. The Sub-Adviser attempts to reduce risk through
diversification of the Fund's portfolio and thorough research. However, there
are risks inherent in the investment in any security, including shares of the
Fund, and there is no guarantee that the Fund's investment strategies will be
successful.
GROWTH FUND
Investment Objective: The Growth Fund seeks to achieve long-term growth of
capital through investments primarily in common stocks and securities
convertible into common stocks that are believed to represent significant
underlying value in relation to current market prices. Realization of current
income, if any, is incidental to this objective.
Sub-Adviser: Miller Anderson & Sherrerd, LLP ("MAS") serves as Sub-Adviser for
the Growth Fund. MAS, which is a wholly owned indirect subsidiary of Morgan
Stanley, Dean Witter, Discover & Co., was organized in 1969 and is located at
One Tower Bridge, West Conshohocken, Pennsylvania 19428. MAS provides investment
counseling services to employee benefit plans, endowment funds, foundations and
other institutional investors and had over $60 billion in assets under
management as of December 31, 1997. MAS is the adviser of the MAS Funds, a
registered investment company offering investment alternatives to institutional
clients with a minimum initial investment of $1 million. MAS also manages
certain assets for First Allmerica and its affiliates.
Investment Policies: The Growth Fund is not limited to investments in any
particular type of company and may invest in any company which, in the opinion
of management, is likely to further its investment objective. The Growth Fund
will pursue its investment objective by maintaining a flexible position
regarding the type of companies, as well as the types of securities, in which it
will invest. Investments may include, but are not limited to, developing or
well-established companies, whether small or large. It is anticipated that there
will be a mix of assets in the Growth Fund. For example, portions of the Growth
Fund may be invested in equity securities of good quality or in well-established
companies considered to represent good value, based on factors including
historical investment standards (such as price/book value ratios and
price/earnings ratios) or in smaller emerging growth companies which are in the
development stage and are expected to achieve above-average earnings growth
because of special factors (such as changes in the economy, the relative
attractiveness of the various securities markets or changes in consumer demand).
The Growth Fund proposes to keep its assets fully invested, but may maintain
reasonable amounts in cash or in high-grade, short-term debt securities to meet
current expenses and anticipated redemptions, and during temporary periods
pending investment in accordance with its policies. The term "high-grade, short-
term debt securities" means the money market instruments described under the
Investment Grade Income Fund's Investment Policies.
The Growth Fund normally will invest substantially all of its assets in
equity-type securities, including common stocks, warrants (which are options to
purchase common stock at specified prices during a specified time period with
the investment risk that the market value of the underlying common stock may not
be high enough in relation to the warrant exercise price to justify purchase
pursuant to the terms of the warrant), preferred stocks and debt securities
convertible into or carrying rights to purchase common stock or to participate
in earnings, and real estate securities to the extent permitted by paragraph
four under "Investment Restrictions" in the SAI. In periods considered by
management to warrant a more defensive position, the Growth Fund may place a
larger proportion of its portfolio in high-grade preferred stocks, bonds or
other fixed-income securities, including U.S. Government securities, whether or
not convertible into stock or with rights attached, or retain cash. The Fund may
engage in the options and futures strategies described under "Certain Investment
Strategies and Policies."
17
--------------------------
Allmerica Investment Trust
<PAGE>
The Growth Fund may invest in both listed and unlisted securities. The Growth
Fund also may invest in foreign as well as domestic securities. The Fund may
invest up to 25% of its assets in foreign securities (not including its
investments in ADRs). The Growth Fund will not concentrate its foreign
investments in any particular foreign country, or limit its investments to
issuers listed on particular exchanges or traded in particular money market
centers. Investments in foreign securities carry additional risks not present in
domestic securities. See "Certain Investment Strategies and Policies." The Sub-
Adviser will consider these and other factors before investing and will not
cause the Growth Fund to invest in foreign securities unless, in its opinion,
such investments will meet the standards and objectives of the Growth Fund.
The Fund may invest up to 15% of its net assets in securities which are
illiquid.
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 79%. The portfolio turnover rate for the Fund may vary greatly from
year to year.
EQUITY INDEX FUND
Investment Objective: The Equity Index Fund seeks to achieve investment results
that correspond to the aggregate price and yield performance of a representative
selection of common stocks that are publicly traded in the United States.
Sub-Adviser: Allmerica Asset Management, Inc. ("AAM") serves as Sub-Adviser to
the Equity Index Fund as well as the Investment Grade Income Fund, Government
Bond Fund and Money Market Fund, other series of the Trust. AAM, an indirect,
wholly-owned subsidiary of AFC, was incorporated in 1993 and is located at 440
Lincoln Street, Worcester, Massachusetts 01653. As of December 31, 1997, AAM had
approximately $11 billion in assets under management. AAM serves as investment
adviser to First Allmerica's General Account and to a number of affiliated
insurance companies and other affiliated accounts, and as Adviser to Allmerica
Securities Trust, a diversified, closed-end management investment company.
Investment Policies: The Equity Index Fund will seek to achieve its objective by
attempting to replicate the aggregate price and yield performance of the
Standard & Poor's Composite Index of 500 Stocks ("S&P 500"). The Fund uses the
S&P 500 as the performance standard because it represents over 70 percent of the
total market value of all publicly-traded common stocks in the U.S., is well-
known to investors and, in the opinion of the Sub-Adviser, is representative of
the performance of common stocks publicly-traded in the United States. Many, but
not all, of the stocks in the S&P 500 are issued by companies that are among the
500 largest as measured by the aggregate market value of their outstanding stock
(market price per share multiplied by number of shares outstanding). Inclusion
of a stock in the S&P 500 does not imply that S&P has endorsed it as an
investment. With respect to investing in common stocks, there can be no
assurance of capital appreciation and there is a substantial risk of market
decline.
The method used to select investments for the Fund involves investing in
common stocks in approximately the order of their weightings in the S&P 500
Index. In addition, the Fund purchases stocks with smaller weightings in order
to represent other sectors of the S&P 500 for diversification purposes.
The Equity Index Fund will invest only in those stocks, and in such amounts,
as its Sub-Adviser determines to be necessary or appropriate for the Fund to
approximate the performance of the S&P 500. Under normal circumstances, it is
expected that the Fund will hold approximately 500 different stocks included in
the S&P 500. The Fund may compensate for the omission of a stock that is
included in the S&P 500, or for purchasing stocks in other than the same
proportions that they are represented in the S&P 500, by purchasing stocks that
are believed to have characteristics that correspond to those of the omitted
stocks. The Fund may invest in short-term debt securities to maintain liquidity
or pending investment in stocks. The Fund may engage in the options and futures
strategies described under "Certain Investment Strategies and Policies." The
Fund also may invest up to 25% of its assets in foreign securities (not
including its investments in ADRs). The Fund may invest up to 15% of its net
assets in securities which are illiquid.
Because of its policy of tracking the S&P 500, the Equity Index Fund is not
managed according to traditional methods of active investment management, which
involve the buying and selling of securities based upon investment analysis of
economic, financial and market factors. Consequently, the projected adverse
financial performance of a company normally would not result in the sale of the
company's stock and projected superior financial performance by a company
normally would not lead to an increase in the holdings of the company. From time
to time, the Sub-Adviser may make adjustments in the portfolio because of cash
flows, mergers, changes in the composition of the S&P 500 and other similar
reasons. Portfolio turnover is expected to be lower than that of most investment
funds investing in common stock. For the fiscal year ended December 31, 1997,
the portfolio turnover rate for the Fund was 9%.
The Equity Index Fund's ability to duplicate the performance of the S&P 500
will be influenced by the size and timing of cash flows into or out of the Fund,
the liquidity of the securities included in the S&P 500, transaction and
operating expenses and other
18
- --------------------------
Allmerica Investment Trust
<PAGE>
factors. In addition, the Fund will incur expenses (including advisory and
administrative fees) that are not reflected in the performance results of the
S&P 500. These factors, among others, may result in "tracking error," which is a
measure of the degree to which the Fund's results differ from the results of the
S&P 500. Due to such factors, the return of the Fund may be lower than the
return of the S&P 500.
Tracking error is measured by the difference between total return for the S&P
500 with dividends reinvested and total return for the Fund with dividends
reinvested after deductions of transaction and operating expenses. For the 12
months ended December 31, 1997, the S&P 500 gained 33.36% versus a gain of
32.41% for the Equity Index Fund producing a tracking error of 0.95% before
advisory and administrative fees. Tracking error is monitored by the Sub-Adviser
on a regular basis. All tracking error deviations are reviewed to determine the
effectiveness of investment policies and techniques. If the tracking error
deviation exceeds industry standards for the Fund's asset size, the Sub-Adviser
will bring the deviation to the attention of the Trustees.
While the Board of Trustees of the Trust has selected the S&P 500 as the index
the Fund will attempt to replicate, the Trustees reserve the right to select
another index at any time without seeking shareholder approval if they believe
that the S&P 500 no longer represents a broad spectrum of common stocks that are
publicly traded in the United States or if there are legal, economic or other
factors limiting the use of any particular index. If the Trustees change the
index which the Equity Index Fund attempts to replicate, the Equity Index Fund
may incur significant transaction costs in switching from one index to another.
S&P is not in any way affiliated with the Equity Index Fund or the Trust.
"Standard & Poor's," "Standard & Poor's 500," and "500" are trademarks of S&P.
SELECT GROWTH AND INCOME FUND
Investment Objective: The Select Growth and Income Fund seeks a combination of
long-term growth of capital and current income. The Fund will invest primarily
in dividend-paying common stocks and securities convertible into common stocks.
Sub-Adviser: John A. Levin & Co., Inc. ("JAL"), One Rockefeller Plaza, 25th
Floor, New York, New York 10020, serves as Sub-Adviser to the Select Growth and
Income Fund. JAL was founded as a Delaware corporation in 1982 and is wholly
owned by Baker, Fentress & Company, a non-diversified closed-end management
investment company registered under the 1940 Act. JAL had approximately $7.4
billion in assets under management as of December 31, 1997. JAL's clients
include U.S. and foreign individuals and their related trusts and charitable
organizations, private investment partnerships, college and university
endowments, foundations and public and private pension and profit sharing
plans.
Investment Policies: To achieve its objective of long-term growth of capital and
current income, the Select Growth and Income Fund will invest primarily in
dividend-paying common stocks and securities convertible into common stocks. It
may invest in a wide range of equity securities, consisting of both dividend-
paying and non-dividend-paying common stocks, preferred stocks, securities
convertible into common and preferred stocks and warrants. These may include
securities of large well-known companies as well as smaller growth companies.
The securities of smaller growth companies involve certain risks as described
above under the "Select Growth Fund." The Fund may hold securities traded on one
or more of the national exchanges as well as in the over-the-counter markets.
The Fund's portfolio investments are not limited to any particular type of
company or industry. The Fund may purchase individual stocks not presently
paying dividends which offer opportunities for capital growth or future income,
provided that the Sub-Adviser believes the overall portfolio is appropriately
positioned to achieve its income objective. To achieve current income, the Fund
may invest up to 35% of its assets in both higher-rated and lower-rated fixed-
income securities, including not more than 15% in lower-rated securities,
commonly known as "junk bonds." In certain circumstances, fixed-income
securities may be purchased by the Fund for long-term growth potential.
(However, the Fund expects to have substantially less than 35% of its assets
invested in fixed-income securities in most circumstances.) Lower-rated, fixed-
income securities involve risks discussed under "Certain Investment Strategies
and Policies-High Yield Securities." For more information concerning the rating
categories of corporate debt securities, see the Appendix to the Prospectus. The
dollar average weighted maturity of the Fund's fixed-income securities will vary
depending on, among other things, current market conditions. Purchases and sales
of portfolio securities are made at such times and in such amounts as deemed
advisable in light of market, economic and other conditions.
The Fund may invest up to 15% of its net assets in securities which are
illiquid. The Fund may also invest up to 25% of its assets in foreign securities
(not including its investments in ADRs).
19
--------------------------
Allmerica Investment Trust
<PAGE>
When the Sub-Adviser determines that market conditions warrant a temporary,
defensive position, the Fund may invest without limitation in high-grade, fixed-
income or U.S. Government securities, or hold assets in cash or cash
equivalents. To the extent the Fund is so invested, it is not achieving its
objective to the same degree as under normal conditions. For hedging purposes,
the Fund may engage in the options and futures strategies described under
"Certain Investment Strategies and Policies." There can be no assurance of
growth of capital, of course, and because the Fund invests a substantial portion
of its assets in common stocks and other securities which fluctuate in value,
there is substantial risk of market decline. The Fund's Sub-Adviser seeks to
minimize this risk through detailed analyses of financial markets and issuers of
equity securities and through investment in a diversified portfolio of such
securities.
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 71%. The portfolio turnover rate for the Fund may vary greatly from
year to year.
SELECT INCOME FUND
Investment Objective: The Select Income Fund seeks a high level of current
income. The Fund will invest primarily in investment grade, fixed-income
securities.
Sub-Adviser: Standish, Ayer & Wood, Inc. ("SAW") serves as Sub-Adviser to the
Select Income Fund. SAW was founded in 1933 to provide investment management
services to high net worth individuals and institutions. As of December 31,
1997, total client assets exceeded $39 billion. SAW manages fixed-income
portfolios for major corporate and governmental pension plans, financial
institutions and endowment and foundation funds. Also, SAW currently serves as
investment adviser to an institutional account sponsored by an AFC affiliate.
Through its affiliate, Standish International Investment Management Company,
L.P., SAW offers international investment services. SAW is an independent
investment counseling firm owned by its twenty-four directors who are active
with the firm. SAW is located at One Financial Center, Boston, Massachusetts
02111.
Investment Policies: Under normal circumstances, at least 65% of the Select
Income Fund's assets, at the time of investment, will be invested in investment
grade corporate debt securities and securities issued or guaranteed as to
principal or interest by the U.S. Government or its agencies or
instrumentalities. Investment grade corporate debt securities are: (a) assigned
a rating within the four highest grades (Baa/BBB or higher) by either Moody's or
S&P, (b) equivalently rated by another nationally recognized statistical rating
organization ("NRSRO") or (c) unrated securities but determined by the Sub-
Adviser to be of comparable quality. Securities rated in the fourth highest
grade (rated Baa and BBB by Moody's and S&P, respectively) are considered to
have some speculative characteristics. For more information concerning the
rating categories of corporate debt securities and commercial paper, see the
Appendix to the Prospectus. The types of securities in which the Fund invests
are corporate debt obligations such as bonds, notes and debentures, and
obligations convertible into common stock; "money market" instruments, such as
bankers acceptances, or negotiable certificates of deposit issued by the 25
largest U.S. banks (in terms of deposits); commercial paper rated Prime-1 by
Moody's or A-1 by S&P; obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; asset-backed securities; mortgage-backed
securities and stripped mortgage-backed securities. The Fund also may invest in
U.S. dollar obligations of, or guaranteed by, the government of Canada or a
province of Canada or any instrumentality or political subdivision thereof, and
U.S. dollar obligations of supranational entities such as the World Bank,
European Investment Bank and African Development Bank. For more information
about asset-backed securities and mortgage-backed securities and stripped
mortgage-backed securities, see "Certain Investment Strategies and Policies."
The Fund's investments in corporate debt securities are not limited to any
particular type of company or industry.
The Fund's dollar average weighted maturity and the mix of permitted portfolio
securities as described above will vary from time to time depending, among other
things, on current market and economic conditions and the comparative yields on
instruments in different sectors, such as corporate and Treasuries, and with
different maturities. The dollar average weighted maturity of the portfolio,
excluding money market instruments, is expected to range between 5 and 20 years
under normal market conditions. The Fund may invest up to 35% of its assets in
money market instruments under normal conditions. Although the Fund does not
invest for short-term trading purposes, portfolio securities may be sold from
time to time without regard to the length of time they have been held. The value
of the Fund's portfolio securities generally will vary inversely with changes in
prevailing interest rates, declining as interest rates rise and increasing as
rates decline. The value will also be affected by other market and economic
factors. There is the risk with corporate debt securities that the issuers may
not be able to meet their obligations on interest and principal payments.
The Fund may invest up to 15% of its net assets in securities which are
illiquid. The Fund may also invest up to 25% of its assets in foreign securities
(not including its investments in ADRs).
The Fund may invest up to 25% of its assets in lower-rated securities,
commonly known as "junk bonds," which involve risks discussed under "Certain
Investment Strategies and Policies-High Yield Securities." For more information
concerning the rating
20
- --------------------------
Allmerica Investment Trust
<PAGE>
categories of corporate debt securities, see the Appendix to the Prospectus.
Obligations in which the Select Income Fund may invest include debt
obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Obligations of supranational
entities may be supported by appropriated but unpaid commitments of their member
countries, and there is no assurance that these commitments will be undertaken
or met in the future. The Fund may not invest more than 25% of its assets in
debt obligations of supranational entities.
For hedging purposes, the Fund may engage in the options and futures
strategies described under "Certain Investment Strategies and Policies."
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 79%. The portfolio turnover rate for the Fund may vary from year to
year. A high portfolio turnover rate may result in greater brokerage costs to
the Fund.
INVESTMENT GRADE INCOME FUND
Investment Objective: The Investment Grade Income Fund seeks as high a level of
total return, which includes capital appreciation as well as income, as is
consistent with prudent investment management.
Sub-Adviser: AAM serves as Sub-Adviser to the Investment Grade Income Fund.
See "Equity Index Fund" for more information about AAM.
Investment Policies: The Fund will invest its assets in the following debt
securities and money market instruments.
Debt Securities:
(a) Obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities;
(b) Debt securities which are rated Aaa, Aa, A, or Baa by Moody's; AAA, AA, A,
or BBB by S&P; or unrated but determined by the Sub-Adviser to be of
comparable quality;
(c) Obligations (payable in U.S. dollars) of, or guaranteed by, the
Government of Canada or of a Province of Canada or any instrumentality or
political subdivision thereof.
Money market instruments include obligations issued or guaranteed by the
United States Government, its agencies, or instrumentalities; commercial paper
rated Prime-1 by Moody's, or A-1 by S&P; or unrated, but determined by the Sub-
Adviser to be of comparable quality; bankers acceptances or negotiable
certificates of deposit issued by the 25 largest U.S. banks (in terms of
deposits); and cash and cash equivalents.
The Fund may engage in the options and futures strategies described under
"Certain Investment Strategies and Policies."
The debt securities in which the Fund may invest are considered "investment
grade" in that they generally are suitable for purchase by prudent investors.
However, the lowest category of investment grade securities (rated Baa by
Moody's or BBB by S&P) may have speculative characteristics, such that changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case of
debt securities with higher ratings. The portfolio of the Fund is managed
actively by AAM, as Sub-Adviser, in order to anticipate events leading to price
or ratings changes. If the rating of a security falls below investment grade, or
an unrated security is deemed to have fallen below investment grade, AAM
analyzes relevant economic and market data in making a determination of whether
to retain or dispose of the investment. The performance of the securities in the
portfolio is monitored continuously, and they are purchased and sold as
conditions warrant and permit.
The Fund may invest up to 25% of its assets in foreign securities (not
including its investments in ADRs) including those listed in (c) above. The Fund
may invest up to 15% of its net assets in securities which are illiquid.
Obligations in which the Fund may invest include debt obligations of
supranational entities. Supranational entities include international
organizations designed or supported by governmental entities to promote economic
reconstruction or development and
21
--------------------------
Allmerica Investment Trust
<PAGE>
international banking institutions and related government agencies. Obligations
of supranational entities may be supported by appropriated but unpaid
commitments of their member countries, and there is no assurance that these
commitments will be undertaken or met in the future. The Fund may not invest
more than 25% of its assets in debt obligations of supranational entities.
For the fiscal year ended December 31, 1997, the portfolio turnover rate for
the Fund was 48%. The portfolio turnover rate for the Fund may vary greatly from
year to year. A high portfolio turnover rate may result in greater brokerage
costs to the Fund.
See the Appendix to the Prospectus for an explanation of the ratings of
Moody's and S&P.
GOVERNMENT BOND FUND
Investment Objective: The Government Bond Fund seeks high income, preservation
of capital, and maintenance of liquidity primarily through investments in debt
instruments issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government securities") and in related options,
futures, and repurchase agreements. Under normal conditions, at least 80% of the
Fund's assets will be invested in U.S. Government securities.
Sub-Adviser: AAM serves as Sub-Adviser to the Government Bond Fund. See "Equity
Index Fund" for more information about AAM.
Investment Policies: Some U.S. Government securities, such as Treasury bills,
notes, and bonds, which differ only in their interest rates, maturities, and
times of issuance, are supported by the full faith and credit of the United
States. Other U.S. Government securities are supported by (i) the right of the
issuer to borrow from the U.S. Treasury, (ii) discretionary authority of the
U.S. Government to purchase the obligations of the agency or instrumentality, or
(iii) only the credit of the instrumentality itself. No assurances can be given
that the U.S. Government would provide financial support to U.S. Government
sponsored instrumentalities if it is not obligated to do so by law. The Fund may
invest in mortgage-backed government securities, including pass-through
securities and participation certificates of the Government National Mortgage
Association ("Ginnie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie
Mac") and the Federal National Mortgage Association ("Fannie Mae").
The Government Bond Fund may invest in any other security or agreement
collateralized or otherwise secured by U.S. Government securities. The Fund also
may invest in separately-traded principal and interest components of securities
guaranteed or issued by the U.S. Treasury if such components are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities Program. The Fund may enter into repurchase agreements and, from time
to time, may have temporary investments in short-term debt obligations
(including certificates of deposit, bankers acceptances and commercial paper)
pending the making of other investments or for liquidity purposes.
The Government Bond Fund may engage in several active management strategies,
including the lending of portfolio securities, forward commitment purchases of
securities, writing covered call and covered put options on U.S. Government
securities, purchasing such call and put options and entering into closing
purchase and sale transactions. The Fund may engage in the options and futures
strategies described under "Certain Investment Strategies and Policies." The
Fund may invest up to 15% of its net assets in securities which are illiquid.
Obligations in which the Fund may invest include debt obligations of
supranational entities. Supranational entities include international
organizations designed or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and related
government agencies. Obligations of supranational entities may be supported by
appropriated but unpaid commitments of their member countries, and there is no
assurance that these commitments will be undertaken or met in the future. The
Fund may not invest more than 25% of its assets in debt obligations of
supranational entities.
U.S. Government securities may be purchased or sold without regard to the
length of time they have been held to attempt to take advantage of short-term
differentials in yields, with the objective of seeking income while conserving
capital. While short-term trading increases portfolio turnover, the Government
Bond Fund incurs little or no brokerage costs for U.S. Government securities.
For the fiscal year ended December 31, 1997, the portfolio turnover rate for the
Fund was 56%.
MONEY MARKET FUND
Investment Objective: The Money Market Fund seeks to obtain maximum current
income consistent with preservation of capital and liquidity.
Sub-Adviser: AAM serves as Sub-Adviser to the Money Market Fund. See "Equity
Index Fund" for more information about AAM.
22
- --------------------------
Allmerica Investment Trust
<PAGE>
Investment Policies: The Fund seeks to achieve its objective by investing in the
following high quality money market instruments:
(a) Obligations issued or guaranteed by the United States Government, its
agencies, or instrumentalities;
(b) Commercial paper which meets the ratings requirements as set forth in the
paragraph below;
(c) Obligations of banks or savings and loan associations (such as bankers
acceptances and certificates of deposit, including dollar-denominated
obligations of foreign branches of U.S. banks ("Eurodollars") and U.S.
branches of foreign banks if such U.S. branches are subject to state
banking requirements and Federal Reserve reporting requirements) which at
the date of the investment have deposits of at least $1 billion as of
their most recently published financial statements;
(d) Repurchase agreements with respect to obligations described under (a)
above (such obligations subject to repurchase agreement may bear
maturities of more than one year). For more information concerning
repurchase agreements, see "Certain Investment Strategies and Policies");
and
(e) Cash and cash equivalents.
The Money Market Fund will not purchase any security unless (i) the security
has received the highest or second highest quality rating by at least two NRSROs
or by one NRSRO if only one has rated the security, or (ii) the security is
unrated and in the opinion of AAM, as Sub-Adviser, in accordance with guidelines
adopted by the Trustees, is of a quality comparable to one of the two highest
ratings of an NRSRO. These standards must be satisfied at the time an investment
is made. If the quality of the investment later declines, the Fund may continue
to hold the investment, but the Trustees will evaluate whether the security
continues to present minimal credit risks. See the Appendix for an explanation
of NRSRO ratings.
The Fund will limit its portfolio investments to securities with a remaining
maturity of 397 days or less as of the time of purchase, in accordance with the
Trustees' guidelines. The portfolio will be managed so as to maintain a dollar-
weighted maturity of 90 days or less. In order to maximize the yield on its
assets, the Fund intends to be as fully invested at all times as is reasonably
practicable. There is always the risk that the issuer of an instrument may be
unable to make payment upon maturity.
The Fund may invest up to 25% of its assets in U.S. dollar denominated foreign
securities (not including its investments in ADRs). The Fund may invest up to
10% of its net assets in securities which are illiquid.
MANAGEMENT FEES AND EXPENSES
Under its Management Agreement with the Trust, the Manager is obligated to
perform certain administrative and management services for the Trust; furnishes
to the Trust all necessary office space, facilities, and equipment; and pays the
compensation, if any, of officers and Trustees who are affiliated with the
Manager. Other than the expenses specifically assumed by the Manager under the
Management Agreement, all expenses incurred in the operation of the Trust are
borne by the Trust, including fees and expenses associated with the registration
and qualification of the Trust's shares under the Securities Act of 1933 (the
"1933 Act"); other fees payable to the SEC; independent accountant, legal and
custodian fees; association membership dues; taxes; interest; insurance
premiums; brokerage commissions; fees and expenses of the Trustees who are not
affiliated with the Manager; expenses for proxies, prospectuses and reports to
shareholders; Fund recordkeeping expenses and other expenses.
For the services to the Funds, the Manager receives fees computed daily at an
annual rate based on the average daily net asset value of each Fund as set forth
below.
<TABLE>
<CAPTION>
SELECT SELECT SELECT CAPITAL SELECT VALUE SELECT SELECT
EMERGING AGGRESSIVE APPRECIATION OPPORTUNITY INTERNATIONAL GROWTH
MARKETS FUND GROWTH FUND FUND FUND EQUITY FUND FUND
------------ ----------- ---- ---- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
Manager Fee 1.35%* (1) (1) (2) (1) 0.85%
</TABLE>
23
--------------------------
Allmerica Investment Trust
<PAGE>
<TABLE>
<CAPTION>
SELECT
STRATEGIC EQUITY SELECT GROWTH SELECT INVESTMENT
GROWTH GROWTH INDEX AND INCOME INCOME GRADE
FUND FUND FUND FUND FUND INCOME FUND
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Manager Fee 0.85% (1) (3) (1) (4) (4)
<CAPTION>
GOVERNMENT MONEY
BOND MARKET
FUND FUND
---- ----
<S> <C> <C>
Manager Fee 0.50% (3)
</TABLE>
- -----------------------------------------------------------
*The Manager voluntarily has agreed until further notice to waive its management
fee in the event that expenses of the Select Emerging Markets Fund exceed 2.00%
of the Fund's average daily net assets. The amount of such waiver will be
limited to the net amount of management fees earned by the Manager from the
Fund after subtracting the fees paid by the Manager to SCMI for sub-advisory
services.
(1) The Manager's fees for the Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select International Equity Fund, Growth Fund and Select
Growth and Income Fund, computed daily at an annual rate based on the
average daily net assets of each Fund, are based on the following schedule:
<TABLE>
<CAPTION>
SELECT SELECT GROWTH
SELECT AGGRESSIVE SELECT CAPITAL INTERNATIONAL AND INCOME
ASSETS GROWTH FUND APPRECIATION FUND EQUITY FUND GROWTH FUND FUND
------ ----------- ----------------- ----------- ----------- ----
<S> <C> <C> <C> <C> <C>
First $100 Million...... 1.00% 1.00% 1.00% 0.60% 0.75%
Next $150 Million....... 0.90% 0.90% 0.90% 0.60% 0.70%
Next $250 Million....... 0.85% 0.85% 0.85% 0.40% 0.65%
Over $500 Million....... 0.85% 0.85% 0.85% 0.35% 0.65%
</TABLE>
(2) The Manager's fee for the Select Value Opportunity Fund, computed daily at
an annual rate based on the average daily net assets of the Fund, is based
on the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $100 Million............................ 1.00%
Next $150 Million............................. 0.85%
Next $250 Million............................. 0.80%
Next $250 Million............................. 0.75%
Over $750 Million............................. 0.70%
</TABLE>
The Manager voluntarily has agreed to limit its management fees to an annual
rate of 0.90% of average daily net assets of the Select Value Opportunity
Fund until further notice.
(3) The Manager's fees for the Equity Index Fund and Money Market Fund, computed
daily at an annual rate based on the average daily net assets of each Fund,
are based on the following schedule:
<TABLE>
<CAPTION>
EQUITY MONEY
INDEX MARKET
ASSETS FUND FUND
------ ---- ----
<S> <C> <C>
First $50 Million............................. 0.35% 0.35%
Next $200 Million............................. 0.30% 0.25%
Over $250 Million............................. 0.25% 0.20%
</TABLE>
24
- --------------------------
Allmerica Investment Trust
<PAGE>
(4) The Manager's fees for the Select Income Fund and Investment Grade Income
Fund, computed daily at an annual rate based on the average daily net assets
of each Fund, are based on the following schedule:
<TABLE>
<CAPTION>
SELECT INVESTMENT
INCOME GRADE
ASSETS FUND INCOME FUND
------ ---- -----------
<S> <C> <C>
First $50 Million................... 0.60% 0.50%
Next $50 Million.................... 0.55% 0.45%
Over $100 Million................... 0.45% 0.40%
</TABLE>
The Manager is responsible for the payment of all fees to the Sub-Advisers.
The Manager pays each Sub-Adviser fees computed daily at an annual rate based on
the average daily net asset value of each Fund as set forth below. In certain
Funds, Sub-Adviser fees vary according to the level of assets in such Funds,
which will reduce the fees paid by the Manager as Fund assets grow but will not
reduce the operating expenses of such Funds.
<TABLE>
<CAPTION>
SELECT SELECT SELECT CAPITAL SELECT VALUE SELECT SELECT
EMERGING AGGRESSIVE APPRECIATION OPPORTUNITY INTERNATIONAL GROWTH
MARKETS FUND GROWTH FUND FUND FUND EQUITY FUND FUND
------------ ----------- ---- ---- ----------- ----
Sub-Adviser Fee (5) (6) 0.50% (7) (8) (9)
<CAPTION>
SELECT
STRATEGIC EQUITY SELECT GROWTH SELECT INVESTMENT
GROWTH GROWTH INDEX AND INCOME INCOME GRADE INCOME
FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sub-Adviser Fee (9) (10) 0.10% (11) 0.20% 0.20%
<CAPTION>
GOVERNMENT MONEY
BOND MARKET
FUND FUND
---- ----
<S> <C> <C>
Sub-Adviser Fee 0.20% 0.10%
</TABLE>
(5) For its services, SCMI will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Emerging Markets Fund,
under the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $50 Million................... 1.00%
Next $50 Million.................... 0.85%
Next $150 Million................... 0.75%
Over $250 Million................... 0.60%
</TABLE>
(6) For its services, NACM will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Aggressive Growth Fund,
under the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $100 Million.................. 0.60%
Next $150 Million................... 0.55%
Next $250 Million................... 0.50%
Over $500 Million................... 0.45%
</TABLE>
25
--------------------------
Allmerica Investment Trust
<PAGE>
(7) For its services, CRM will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Value Opportunity Fund,
under the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $100 Million................. 0.60%
Next $150 Million.................. 0.50%
Next $250 Million.................. 0.40%
Next $250 Million.................. 0.375%
Over $750 Million.................. 0.35%
</TABLE>
(8) For its services, BIAM will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select International Equity
Fund, under the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $50 Million.................. 0.45%
Next $50 Million................... 0.40%
Over $100 Million.................. 0.30%
</TABLE>
(9) For their services, Putnam and Cambiar will receive a fee computed daily at
an annual rate based on the average daily net assets of the Select Growth
Fund and Select Strategic Growth Fund, respectively, under the following
schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $50 Million.................. 0.50%
Next $100 Million.................. 0.45%
Next $100 Million.................. 0.35%
Next $100 Million.................. 0.30%
Over $350 Million.................. 0.25%
</TABLE>
(10) For its services, MAS will receive a fee based on the aggregate assets of
the Growth Fund and certain other accounts of the Manager and its
affiliates which are managed by MAS, under the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $50 Million.................. 0.50%
Next $50 Million................... 0.375%
Next $400 Million.................. 0.25%
Next $350 Million.................. 0.20%
Over $850 Million.................. 0.15%
</TABLE>
(11) For its services, JAL will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Growth and Income Fund,
under the following schedule:
<TABLE>
<CAPTION>
ASSETS RATE
------ ----
<S> <C>
First $100 Million................. 0.40%
Next $200 Million.................. 0.25%
Over $300 Million.................. 0.30%
</TABLE>
For the fiscal year ended December 31, 1997, each Fund (except the Select
Emerging Markets Fund and Select Strategic Growth Fund which had not commenced
operations) paid the Manager gross fees before reimbursement at the following
effective rates based on the Fund's average daily net assets:
26
- --------------------------
Allmerica Investment Trust
<PAGE>
<TABLE>
<CAPTION>
FUND RATE
---- ----
<S> <C>
Select Aggressive Growth Fund........................ 0.95%
Select Capital Appreciation Fund..................... 0.98%
Select Value Opportunity Fund....................... 0.92%
Select International Equity Fund..................... 0.97%
Select Growth Fund................................... 0.85%
Growth Fund.......................................... 0.43%
Equity Index Fund.................................... 0.31%
Select Growth and Income Fund........................ 0.73%
Select Income Fund................................... 0.59%
Investment Grade Income Fund......................... 0.41%
Government Bond Fund................................. 0.50%
Money Market Fund.................................... 0.27%
</TABLE>
The following table shows voluntary expense limitations which the Manager has
declared for each Fund and the operating expenses incurred for the fiscal year
ended December 31, 1997 for each Fund (except the Select Emerging Markets Fund
and the Select Strategic Growth Fund which had not commenced operations):
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE DAILY ASSETS
----------------------------------
VOLUNTARY EXPENSE OPERATING
FUND LIMITATIONS EXPENSES+
---- ----------- ---------
<S> <C> <C>
Select Emerging Markets Fund * N/A
Select Aggressive Growth Fund 1.35% 0.99%
Select Capital Appreciation Fund 1.35% 1.13%
Select Value Opportunity Fund 1.25% 0.98%
Select International Equity Fund 1.50% 1.15%
Select Growth Fund 1.20% 0.91%
Select Strategic Growth Fund 1.20% N/A
Growth Fund 1.20% 0.47%
Equity Index Fund 0.60% 0.44%
Select Growth and Income Fund 1.10% 0.77%
Select Income Fund 1.00% 0.72%
Investment Grade Income Fund 1.00% 0.51%
Government Bond Fund 1.00% 0.67%
Money Market Fund 0.60% 0.35%
</TABLE>
- --------------------------------------------------------------------------------
+Including reductions such as directed brokerage credits. See "Brokerage
Allocation - Directed Brokerage Program" in the SAI.
*The Manager has agreed until further notice to waive voluntarily its
management fee in the event that expenses of the Select Emerging Markets Fund
exceed 2.00% of the Fund's average daily net assets. The amount of such waiver
will be limited to the net amount of management fees earned by the Manager from
the Fund after subtracting fees paid by the Manager to SCMI for sub-advisory
services.
The Manager will voluntarily reimburse its fees and any expenses above the
expense limitations. The expense limitations are voluntary and may be removed at
any time after a Fund's first fiscal year of operations with notice to existing
shareholders. The Manager reserves the right to recover from a Fund any fees,
within a current fiscal year period, which were reimbursed in that same year to
the extent that total annual expenses did not exceed the applicable expense
limitation. The expenses which are subject to the voluntary expense limitations
include management fees, independent accountant, legal and custodian fees;
recordkeeping expenses; fees and expenses of Trustees who are not affiliated
with the Manager; association membership dues, insurance; expenses for proxies,
prospectuses and reports to shareholders and fees associated with the
registration of Fund shares. Non-recurring and extraordinary expenses generally
are excluded in the determination of expense ratios of the Funds for purposes of
determining any applicable expense waiver or reimbursement. Quotations of yield
or total return for any period when an expense limitation is in effect will be
greater than if the limitation had not been in effect.
27
--------------------------
Allmerica Investment Trust
<PAGE>
FUND MANAGER INFORMATION
The following individuals are primarily responsible for the day-to-day
management of the particular Funds as indicated below:
The following portfolio managers are involved in the investment process
utilized for the SELECT EMERGING MARKETS FUND:
John A. Troiano, Chief Executive and Chairman of Emerging Markets Committee,
joined SCMI in 1981 as an investment analyst specializing in engineering and
technology. In 1989, he set up SCMI's Latin American team.
Mark Bridgeman, First Vice President, joined SCMI in 1990 and is a Fund Manager
specializing in the African markets.
Heather F. Crighton, Director, joined SCMI in 1993 as a Fund Manager
specializing in the Asian emerging markets.
The following individuals have served as members of a committee of fund
managers for the SELECT AGGRESSIVE GROWTH FUND since March 1994:
Lawrence S. Speidell is a Partner and Director of Global/Systematic Portfolio
Management and Research at NACM. Prior to joining NACM in 1994, Mr. Speidell
spent ten years with Batterymarch Financial Management. He was also Senior Vice
President and Portfolio Manager at Putnam Management Company from 1971 to 1983.
John J. Kane is a Partner and Senior Portfolio Manager for the U.S. Systematic
portfolios at NACM. He has 28 years of economic/investment experience. Prior
to joining NACM in 1994, Mr. Kane was employed by ARCO Investment Management
Company and General Electric Company.
Mark W. Stuckelman, Portfolio Manager, U.S. Systematic, joined NACM in 1995.
Prior to joining NACM, he was employed for five years with Wells Fargo Bank's
Investment Management Group, Fidelity Management Trust Co., and BARRA, Inc.
The following portfolio managers are involved in the investment process
utilized for the SELECT CAPITAL APPRECIATION FUND:
Brian W.H. Berghuis is a Chartered Financial Analyst who has been with T. Rowe
Price for 13 years. He has 15 years' experience in equity research and
portfolio management. He is head of the investment team for the Fund.
John F. Wakeman has been with T. Rowe Price for 9 years as a research analyst
and portfolio manager. He has 11 years' experience in equity research. He is
part of the investment team for the Fund.
Marc L. Baylin is a Chartered Financial Analyst who has 7 years of investment
experience in equity research. He has been with T. Rowe Price for 5 years as a
Research Analyst and is part of the investment team for the Fund.
The following individuals have served as fund managers for the SELECT VALUE
OPPORTUNITY FUND since January 1, 1997:
Ronald H. McGlynn, Chief Executive Officer and President of Cramer Rosenthal,
has been with Cramer Rosenthal since 1973 and CRM since its founding in 1995.
He has 29 years of investment experience and serves as Co-Chief Investment
Officer and Portfolio Manager.
Jay B. Abramson, who is an Executive Vice President, Director of Research and
Co-Chief Investment Officer, has been with Cramer Rosenthal since 1985 and CRM
since its founding in 1995 and has overall responsibility for investment
research.
Eileen M. Fitzsimons, Vice President and portfolio manager, joined Cramer
Rosenthal in 1996. Previously she was a Managing Director with Dreman Value
Advisors, Inc.
The following portfolio managers are involved in the investment process
utilized for the SELECT INTERNATIONAL EQUITY FUND:
Christopher Reilly, Chief Investment Officer, joined BIAM in 1980 and has had
overall responsibility for asset management since 1985. Previously, he worked
in the United Kingdom in stockbrokering and investment management.
28
- --------------------------
Allmerica Investment Trust
<PAGE>
Denis Donovan, Director-Portfolio Management, received an MBA from University
College Dublin. Prior to joining BIAM in 1985, he spent more than 13 years in
the money market and foreign exchange operations of the Central Bank of
Ireland, the Irish equivalent of the U.S. Federal Reserve. He has overall
responsibility for the portfolio management function for all of BIAM's client
base.
Peter Wood joined BIAM in 1985 after spending five years with another leading
investment management firm. He is responsible for portfolio construction.
Jane Neill, Senior Equity Analyst, joined BIAM in 1994. Previously, she was
Chief Investment Officer with another leading Irish investment management firm.
The following individuals have served as members of a committee of fund
managers for the SELECT GROWTH FUND since July 1, 1996:
Carol C. McMullen, Chief Investment Officer, Global Growth Equities, has been
an investment professional with Putnam since 1995. Prior to 1995, Ms. McMullen
was Senior Vice President of Baring Asset Management.
C. Beth Cotner, CFA and Chief Investment Officer, Large Cap Growth Equity, has
been with Putnam since 1995. Prior to 1995, Ms. Cotner was Executive Vice
President at Kemper Financial Services.
Manual Weiss, CFA and Senior Vice President, has been an investment
professional with Putnam since 1987.
The following portfolio managers are involved in the investment process
utilized for the SELECT STRATEGIC GROWTH FUND:
Michael S. Barish, CFA and President, founded Cambiar in 1973 and has 36 years
of investment experience. He is a generalist and is responsible for the
consumer goods and healthcare securities.
Darrel J. Hershey, Senior Vice President, joined Cambiar in 1985 and has 22
years of investment experience. Prior to 1985, Mr. Hershey was employed by
Financial Programs for 10 years as a portfolio manager. He is responsible for
the technology-hardware securities, consumer services and transportation
securities.
Kathleen M. McCarty, CFA, Senior Vice President, joined Cambiar in 1987. Prior
to 1987, Ms. McCarty was employed by Dain Bosworth as the Vice President of
Research. She is responsible for financial services, communication services
and utilities securities.
Michael J. Gardner, CFA and Vice President, joined Cambiar in 1995. Prior to
1995, Mr. Gardner was employed by Simmons & Co. He is responsible for energy
and capital goods securities.
Brian M. Barish, CFA and Vice President, was a Vice President at Lazard Freres
& Co. prior to joining Cambiar in 1997. He is responsible for technology-
software, consumer goods, transportation and international securities.
The following individuals serve as members of a committee of fund managers
for the GROWTH FUND:
Gary G. Schlarbaum, CFA and Managing Director, joined MAS in 1987 and has
served on the committee since 1993. Prior to 1987, Mr. Schlarbaum was employed
by First Chicago Investment Advisors from 1984 to 1987. Prior to First Chicago,
Mr. Schlarbaum held teaching positions at Purdue University and the University
of Pennsylvania.
Arden C. Armstrong, CFA and Managing Director, joined the firm in 1986. Prior
to joining MAS, Ms. Armstrong was employed by Evans Economics, Inc.
Nicholas Kovich, CFA and Managing Director, joined MAS in 1988 and has served
on the committee since the Fund's inception in April 1988. Prior to MAS, Mr.
Kovich was employed by Waddell & Reed Asset Management Company from 1982 to
1988 as an Investment Research Analyst and as Assistant Vice President and
Portfolio Manager.
29
--------------------------
Allmerica Investment Trust
<PAGE>
Robert J. Marcin, CFA and Managing Director, joined MAS in 1988. Prior to
joining MAS in 1988, Mr. Marcin was an Account Executive at Smith Barney Harris
Upham and Company, Inc.
Brian Kramp, CFA and Vice President, joined MAS in 1997. Mr. Kramp was
employed as an analyst and portfolio manager by Meridian Investment Company
from 1985 to 1997.
James J. Jolinger, Principal, joined MAS in 1994 and has served on the
committee since 1997. Prior to 1994, Mr. Jolinger was employed by Oppenheimer
Capital as an Equity Analyst from 1987 to 1994.
The following individuals have served as members of a committee of fund
managers for the SELECT GROWTH AND INCOME FUND since September 1994:
John A. Levin, Chairman and Chief Investment Officer, has over 33 years
experience in the investment industry and has been with JAL since 1982. Prior
to 1982, Mr. Levin was a Partner at Steinhardt Partners and a Partner and
Director of Research at Loeb, Rhoades & Co.
Jeffrey A. Kigner, Co-Chairman and Chief Investment Officer, has over 14 years
of investment industry experience and has been with JAL since 1984. Prior to
1984, Mr. Kigner was employed by Cralin & Co.
The following individuals have served as members of a committee of fund
managers for the SELECT INCOME FUND since the Fund's inception in August 1992:
Edward H. Ladd, Chairman and Managing Director, joined SAW in 1962 and is the
firm's economist. He also assists clients in establishing investment
strategies. Mr. Ladd is a Director of the Federal Reserve Bank of Boston, New
England Electric System, Greylock Management and Harvard Management Corporation
and a member of SAW's Executive Committee.
George W. Noyes, President and Managing Director, joined SAW in 1970 and
directs bond policy formulation and manages institutional bond portfolios at
SAW. Mr. Noyes is Vice Chairman of the ICFA Research Foundation and serves on
SAW's Executive Committee.
Dolores S. Driscoll, Managing Director, joined SAW in 1974 and manages fixed-
income portfolios with specific emphasis on mortgage pass-throughs and original
issue discount bonds. Ms. Driscoll also serves on SAW's Executive Committee.
Richard C. Doll, Manager, joined SAW in 1984 and is a portfolio manager with
research responsibilities in convertible bonds. Prior to joining SAW, Mr. Doll
was a Vice President with the Bank of New England.
Maria D. Furman, Vice President and Director, joined SAW in 1976. She is head
of the tax-exempt area and manages insurance and pension fund accounts. Ms.
Furman currently serves on SAW's Executive Committee.
The following individual has served as fund manager for the INVESTMENT GRADE
INCOME FUND since May 1994:
Lisa M. Coleman, CFA and Vice President of AAM, was a Deputy Manager/Portfolio
Manager in the global fixed income area for Brown Brothers Harriman & Company
in New York prior to joining AAM in May 1994.
The following individual has served as fund manager for the GOVERNMENT BOND
FUND since May 1995:
Richard J. Litchfield, CFA and Vice President of AAM, was a mortgage-backed
securities analyst and trader at Keystone Investments, Inc. prior to joining
AAM in May 1995.
The following individual has served as fund manager for the EQUITY INDEX FUND
and MONEY MARKET FUND since March 1995:
John C. Donohue, Assistant Vice President of AAM, was a portfolio manager at CS
First Boston Investment Management prior to joining AAM in 1995.
HOW ARE SHARES VALUED?
The net asset value of the shares of each Fund is determined once daily as of
the close of regular trading on the New York Stock Exchange (the "Exchange") on
each day on which the Exchange is open for trading.
30
- --------------------------
Allmerica Investment Trust
<PAGE>
Equity securities are valued on the basis of their market value if market
quotations are readily available from the primary market on which the security
is traded. In other cases, they are valued at their fair value as determined in
good faith by the Trustees, although the actual calculations may be performed by
persons acting pursuant to the direction of the Trustees. Debt securities (other
than short-term obligations) normally are valued on the basis of valuations
formulated by a pricing service which utilizes data processing methods to
determine valuations for normal, institutional-size trading units of such
securities. Such methods include the use of market transactions for comparable
securities and various relationships between securities which generally are
recognized by institutional traders. All securities of the Money Market Fund are
valued at amortized cost. Debt obligations in the other Funds having a remaining
maturity of 60 days or less are valued at amortized cost when it is determined
that amortized cost approximates fair value. Short-term obligations of the other
Funds having a remaining maturity of more than 60 days are marked to market
based upon readily available market quotations for such obligations or similar
securities.
Unlike the Money Market Fund which attempts to maintain a stable net asset
value, the net asset value of the other Funds will fluctuate.
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
It is the policy of the Trust to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies so that the Trust will
not be subject to federal income tax on any net income and any capital gains to
the extent they are distributed or are deemed to have been distributed to
shareholders. Dividends out of net investment income will be declared and paid
quarterly in the case of the Growth Fund, Equity Index Fund, Select Growth and
Income Fund, Select Income Fund, Investment Grade Income Fund, and Government
Bond Fund; annually in the case of the Select Emerging Markets Fund, Select
Aggressive Growth Fund, Select Capital Appreciation Fund, Select Value
Opportunity Fund, Select International Equity Fund, Select Growth Fund and
Select Strategic Growth Fund; and daily in the case of the Money Market Fund.
Distributions of net capital gains for the year, if any, are made annually. All
dividends and capital gain distributions are applied to purchase additional Fund
shares at net asset value as of the payment date. Fund shares are held by the
Separate Accounts and any distributions are reinvested automatically by the
Separate Accounts. Tax consequences to investors in the Separate Accounts which
are invested in the Trust are described in the prospectuses for such Accounts.
SALE AND REDEMPTION OF SHARES
Shares of the Funds are sold in a continuous offering and currently may be
purchased only by Separate Accounts of First Allmerica or its subsidiaries. The
Separate Accounts are the funding mechanisms for variable annuity contracts and
variable life insurance policies. The Separate Accounts invest in shares of one
or more of the Funds. Shares of each Fund are sold at their net asset value as
next computed after receipt of the purchase order without the addition of any
selling commission or "sales load." The Distributor, Allmerica Investments,
Inc., at its expense, may provide promotional incentives to dealers that sell
variable annuity contracts for which the Funds serve as investment vehicles.
Shares of the Trust are also currently being issued under separate
prospectuses to Separate Accounts of Allmerica Financial Life, First Allmerica
and subsidiaries of First Allmerica which issue variable or group annuity
policies or variable premium life insurance policies ("mixed funding"). Although
neither Allmerica Financial Life nor the Trust currently foresees any
disadvantage, it is conceivable that in the future such mixed funding may be
disadvantageous for variable or group annuity policyowners or variable premium
life insurance policyowners ("Policyowners"). The Trustees of the Trust intend
to monitor events in order to identify any conflicts that may arise between such
Policyowners and to determine what action, if any, should be taken in response
thereto. If the Trustees were to conclude that separate funds should be
established for variable annuity and variable premium life separate accounts,
Allmerica Financial Life would pay the attendant expenses. The Trust has filed
an application with the SEC for an exemptive order to permit Fund shares to be
sold to variable annuity and life insurance separate accounts of both affiliated
and unaffiliated life insurance companies and qualified pension and retirement
plans outside of the separate account context. If the requested order is
granted, any Fund may serve as a funding vehicle for all types of variable
annuity contracts and variable life insurance contracts offered by various
participating insurance companies and for qualified plans; material
irreconcilable conflicts may possibly arise among various contract owners and
plan participants and the Board of Trustees will monitor events in order to
identify the existence of any material irreconcilable conflict and determine
what action, if any, should be taken in response to such conflict.
The Trust redeems shares of each Fund at its net asset value as next computed
after receipt of the request for redemption. The redemption price may be more or
less than the shareholder's cost. No fee is charged by the Trust on redemption.
The variable
31
--------------------------
Allmerica Investment Trust
<PAGE>
contracts funded through the Separate Accounts are sold subject to certain fees
and charges which may include sales and redemption charges as described in the
Prospectuses for such Separate Accounts.
Redemption payments will be paid within seven days after receipt of the
written request therefor by the Trust, except that the right of redemption may
be suspended or payments postponed whenever permitted by applicable law and
regulations.
HOW IS PERFORMANCE DETERMINED?
A Fund's performance may be quoted in advertising. A Fund's performance may be
compared with the performance of other investments or relevant indices. All
performance information is based on historical results and is not intended to
indicate future performance.
For Funds other than the Money Market Fund, "yield" is calculated by dividing
a Fund's annualized net investment income per share during a recent 30-day
period by the net asset value per share on the last day of that period. For the
Money Market Fund, "yield" represents an annualization of the change in value of
an investment (excluding any capital changes) in the Fund for a specific seven-
day period; "effective yield" compounds that yield for a year and is, for that
reason, greater than the Fund's yield.
Total returns are based on the overall dollar or percentage change in value of
a hypothetical investment in a Fund assuming all dividends and capital gain
distributions are reinvested. Cumulative total return reflects the Fund's
performance over a stated period of time. Average annual total return reflects
the hypothetical, annually-compounded return that would have produced the same
cumulative return if the Fund's performance had been constant over the entire
period. Because average annual returns tend to smooth out variations in the
Fund's return, they are not the same as actual year-by-year results.
YIELDS AND TOTAL RETURNS QUOTED FOR THE FUNDS INCLUDE THE EFFECT OF DEDUCTING
THE FUNDS' EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO A
PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE FUNDS CAN BE PURCHASED ONLY
THROUGH A VARIABLE ANNUITY CONTRACT OR VARIABLE LIFE CONTRACT, YOU SHOULD REVIEW
CAREFULLY THE PROSPECTUS FOR THE SEPARATE ACCOUNTS FOR INFORMATION ON RELEVANT
CHARGES AND EXPENSES. INCLUDING THESE CHARGES IN THE QUOTATIONS OF THE FUNDS'
YIELDS AND TOTAL RETURNS WOULD HAVE THE EFFECT OF DECREASING PERFORMANCE.
PERFORMANCE INFORMATION FOR THE FUNDS MUST ALWAYS BE ACCOMPANIED BY, AND BE
REVIEWED WITH, PERFORMANCE INFORMATION FOR THE SEPARATE ACCOUNTS WHICH INVEST IN
THE FUNDS.
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established as a Massachusetts business trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated October 11, 1984
(the "Trust Declaration"). A copy of the Trust Declaration is on file with the
Secretary of the Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares of beneficial interest
which may be divided into an unlimited number of series of such shares, and
which are divided presently into 14 series of shares, one series underlying each
Fund. The Trust's shares are entitled to one vote per share (with proportional
voting for fractional shares). The rights accompanying Fund shares are vested
legally in the Separate Accounts. As a matter of policy, however, holders of
variable premium life insurance or variable annuity contracts funded through the
Separate Accounts have the right to instruct the Separate Accounts as to voting
Fund shares on all matters to be voted on by Fund shareholders. Voting rights
of the participants in the Separate Accounts are set forth more fully in the
prospectuses or offering circular relating to those Accounts. See "Organization
of the Trust" in the SAI for the definition of a "majority vote" of
shareholders.
The Trust is not required to hold annual meetings of shareholders. The
Trustees or shareholders holding at least 10% of the outstanding shares may call
special meetings of shareholders.
FUND RECORDKEEPING AGENT
Investor Services Group calculates net asset value per share and maintains
general accounting records for each Fund. Investor Services Group is entitled
to receive an annual Fund recordkeeping fee based on Fund assets and certain
out-of-pocket expenses.
CUSTODIAN
Bankers Trust Company, 130 Liberty Street, New York, New York 10006, is the
Custodian of the investment securities and other assets of the Trust.
32
- --------------------------
Allmerica Investment Trust
<PAGE>
INVESTMENT RESTRICTIONS
The following is a description of certain investment restrictions which are
fundamental and may not be changed with respect to a Fund without shareholder
approval. For a description of certain other investment restrictions, reference
should be made to the SAI.
1. No Fund will concentrate its investments in particular industries, including
debt obligations of supranational entities and foreign governments, but a Fund
may invest up to 25% of the value of its total assets in a particular industry.
The restriction does not apply to investments in obligations issued or
guaranteed by the United States of America, its agencies or instrumentalities,
or to investments by the Money Market Fund in securities issued or guaranteed by
domestic branches of U.S. banks.
2. As to 75% of the value of its total assets (100% for the Money Market Fund),
no Fund will invest more than 5% of the value of its total assets in the
securities of any one issuer (other than securities issued by or guaranteed as
to principal or interest by the United States Government or any agency or
instrumentality thereof) or acquire more than 10% of the voting securities of
any issuer. The remaining 25% of assets (other than for the Money Market Fund)
may be invested in the securities of one or more issuers without regard to such
limitations.
These limitations apply as of the time of purchase. If through market action
the percentage limitations are exceeded, the Fund will not be required to reduce
the amount of its holdings in such investments.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
REPURCHASE AGREEMENTS (APPLICABLE TO ALL FUNDS) AND REVERSE REPURCHASE
AGREEMENTS (APPLICABLE TO THE SELECT CAPITAL APPRECIATION FUND)
Each Fund may invest in repurchase agreements, under which the Fund acquires
ownership of a security (ordinarily U.S. Government securities) but the seller
agrees at the time of sale to purchase the security at a mutually agreed upon
time and price. Should any seller of a repurchase agreement fail to repurchase
the underlying security, or should any seller become insolvent or involved in a
bankruptcy proceeding, a Fund could incur disposition costs and losses.
Repurchase agreements maturing in more than seven days are subject to the 15%
limit (10% for the Money Market Fund) on illiquid securities.
When the Select Capital Appreciation Fund invests in a reverse repurchase
agreement, it sells a security to another party such as a banker or broker-
dealer in return for cash and agrees to buy the security back at a future date
and price. Reverse repurchase agreement transactions can be considered a form of
borrowing by the Fund. Reverse repurchase agreements may be used to provide cash
to satisfy unusually heavy redemption requests or for other temporary or
emergency purposes without the necessity of selling portfolio securities or to
earn additional income on portfolio securities, such as treasury bills and
notes.
"WHEN-ISSUED" SECURITIES (APPLICABLE TO ALL FUNDS)
Each Fund may purchase securities on a when-issued or delayed delivery basis.
Delivery and payment normally take place 15 to 45 days after the commitment to
purchase. No income accrues on when-issued securities prior to delivery.
Purchase of when-issued securities involves the risk that yields available in
the market when delivery occurs may be higher than those available when the
when-issued order is placed resulting in a decline in the market value of the
security. There is also the risk that under some circumstances the purchase of
when-issued securities may act to leverage the Fund.
LENDING OF SECURITIES (APPLICABLE TO ALL FUNDS)
For the purpose of realizing additional income, the Funds may lend portfolio
securities to broker-dealers or financial institutions amounting to not more
than 33 1/3% of their respective total assets taken at current value. While any
such loan is outstanding, a Fund will continue to receive amounts equal to the
interest or dividends paid by the issuer on the securities, as well as interest
(less any rebates to be paid to the borrower) on the investment of the
collateral or a fee from the borrower. Each Fund will have the right to call
each loan and obtain the securities. Lending portfolio securities involves
certain risks, including possible delays in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will be made in accordance with
guidelines established by the Board of Trustees.
33
--------------------------
Allmerica Investment Trust
<PAGE>
FOREIGN SECURITIES (APPLICABLE TO EACH FUND EXCEPT THE GOVERNMENT BOND FUND)
Investments in foreign markets involve substantial risks typically not
associated with investing in the U.S. which should be considered carefully by
the investor. Such risks may include political and economic instability,
differing accounting and financial reporting standards, higher commission rates
on foreign portfolio transactions, less readily available public information
regarding issuers, potentially adverse changes in tax and exchange control
regulations, and the potential for restrictions on the flow of international
capital. Foreign securities also involve currency risks. Accordingly, the
relative strength of the U.S. dollar may be an important factor in the
performance of the Fund, depending on the extent of the Fund's foreign
investments. The Money Market Fund may invest only in U.S. dollar denominated
foreign securities. Some foreign securities exchanges may not be as developed or
efficient as those in the United States and securities traded on foreign
securities exchanges generally are subject to greater price volatility. There is
also the possibility of adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation and limitations on the
removal of funds or other assets.
Investments in emerging countries involve exposure to economic structures that
are generally less diverse and mature than in the United States, and to
political systems which may be less stable. In addition, securities of issuers
located in emerging countries may have limited marketability and may be subject
to more abrupt or erratic price fluctuations. The risk also exists that an
emergency situation may arise in one or more emerging markets as a result of
which trading of securities may cease or may be substantially curtailed and
prices for a Fund's portfolio securities in such markets may not be readily
available. Many emerging market countries have experienced high rates of
inflation for many years. Inflation and rapid fluctuations in inflation rates
have had and may continue to have negative effects on the economies and
securities markets of certain countries with emerging markets. Emerging markets
generally are heavily dependent upon international trade and, accordingly, have
been and may continue to be affected adversely by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed by the countries with which they trade. In
certain markets there have been times when settlements of securities
transactions have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions.
The Funds may buy or sell foreign currencies, options on foreign currencies
and foreign currency futures contracts and options thereon and, in addition, the
Select Emerging Markets Fund, Select Capital Appreciation Fund, Select
International Equity Fund and Select Income Fund may invest in foreign currency
forward contracts. Although such instruments may reduce the risk of loss due to
a decline in the value of the currency that is sold, they also limit any
possible gain which might result should the value of the currency increase. Such
instruments will be used primarily to protect a Fund from adverse currency
movements; however, they also involve the risk that anticipated currency
movements will not be accurately predicted, thus adversely affecting a Fund's
total return. See "Options and Futures Transactions."
The Funds' investments may include ADRs. For many foreign securities, there
are U.S. dollar-denominated ADRs which are traded in the United States on
exchanges or over the counter. ADRs represent the right to receive securities of
foreign issuers deposited in a domestic bank or a correspondent bank. An ADR may
be sponsored by the issuer of the underlying foreign security, or it may be
issued in unsponsored form. The holder of a sponsored ADR is likely to receive
more frequent and extensive financial disclosure concerning the foreign issuer
than the holder of an unsponsored ADR and generally will bear lower transaction
charges. Each Fund may invest in both sponsored and unsponsored ADRs. The Select
International Equity Fund and the Select Capital Appreciation Fund also may
utilize EDRs, which are designed for use in European securities markets, and
also may invest in GDRs.
Obligations in which the Select Income Fund, Investment Grade Income Fund and
Government Bond Fund may invest include debt obligations of supranational
entities. Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Obligations of supranational entities may be supported by appropriated
but unpaid commitments of their member countries, and there is no assurance that
these commitments will be undertaken or met in the future. A Fund may not invest
more than 25% of its assets in debt obligations of supranational entities.
Certain state insurance regulations may impose additional restrictions on a
Fund's holdings of foreign securities.
OPTIONS AND FUTURES TRANSACTIONS (APPLICABLE TO EACH FUND EXCEPT THE MONEY
MARKET FUND), FORWARD CONTRACTS (APPLICABLE TO THE SELECT EMERGING MARKETS FUND,
SELECT CAPITAL APPRECIATION FUND, SELECT INTERNATIONAL EQUITY FUND AND SELECT
INCOME FUND) AND SWAPS (APPLICABLE TO THE SELECT CAPITAL APPRECIATION FUND)
Through the writing and purchase of put and call options on its securities,
financial indices and foreign currencies, and the purchase and sale of futures
contracts and related options with respect to securities, financial indices and
(in the case of the Select Emerging Markets Fund, Select Capital Appreciation
Fund, Select International Equity Fund and Select Income Fund) foreign
34
- --------------------------
Allmerica Investment Trust
<PAGE>
currencies in which it may invest, each Fund except the Money Market Fund may at
times seek to hedge against fluctuations in net asset value, or to a limited
extent, to engage in non-hedging strategies. A Fund may not purchase or sell a
futures contract for non-hedging purposes if immmediately thereafter the sum of
the amount of margin deposits and amount of variation margins paid from time to
time on a Fund's existing futures and related options positions and premiums
paid for related options would exceed 5% of the market value of the Fund's total
assets. The Select Emerging Markets Fund, Select Capital Appreciation Fund,
Select International Equity Fund and Select Income Fund may invest without
limitation in foreign currency options. Each Fund's ability to engage in options
and futures strategies will depend on the availability of liquid markets in such
instruments. It is impossible to predict the amount of trading interest that may
exist in various types of options or futures contracts. Therefore, there is no
assurance that a Fund will be able to utilize these instruments effectively for
the purposes stated above.
Additionally, the Select Emerging Markets Fund, Select Capital Appreciation
Fund, Select International Equity Fund and Select Income Fund may invest in
forward currency contracts with the stated contract value of up to the value of
the Fund's assets and the Select Capital Appreciation Fund in swaps which may
expose these Funds to additional risks and transaction costs.
Risks inherent in the use of futures, options, forward contracts and swaps
("derivative instruments") include (1) the risk that movements in interest
rates, securities prices and currency markets will not be accurately anticipated
and a Fund's total return could be adversely affected as a result; (2) imperfect
correlation, or even no correlation, between the price of derivative instruments
and movements in the prices of the securities, interest rates or currencies
being hedged; (3) the fact that skills and techniques needed to use these
strategies are different from those needed to select portfolio securities; (4)
the lack of assurance that a liquid secondary market will exist for any
particular instrument at any time and, as a result, contractual positions cannot
be closed out easily; (5) the possible loss of principal under certain
conditions; (6) the possible inability of a Fund to purchase or sell a portfolio
security at a time when it would otherwise be favorable to do so due to the need
for the Fund to maintain "cover" or set aside securities in connection with
hedging techniques; and (7) the risk of a loss if the counterparty to the
transaction does not perform as promised. These techniques may increase
volatility of a Fund and may involve a small investment of cash relative to the
magnitude of the risk assumed.
The Funds will purchase futures and options only on exchanges or boards of
trade when there appears to be an active secondary market, but there can be no
assurance that a liquid secondary market will exist for any future or option at
any particular time.
In connection with transactions in futures and related options, the Funds will
be required to deposit as "initial margin" an amount of cash and/or securities.
Thereafter, subsequent payments are made to and from the broker to reflect
changes in the value of the futures contract.
A more detailed explanation of futures, options and other derivative
instruments, and the risks associated with them, is included in the SAI.
RESTRICTED SECURITIES (APPLICABLE TO ALL FUNDS)
The Funds also may purchase fixed-income securities that are not registered
under the 1933 Act ("restricted securities"), but can be offered and sold to
"qualified institutional buyers" under Rule 144A of the 1933 Act. However, each
Fund will not invest more than 15% (10% for the Money Market Fund) of its net
assets in restricted securities (and securities deemed to be illiquid) unless
the Board of Trustees determines, based upon a continuing review of the trading
markets for the specific restricted security, that such restricted securities
are liquid. The Board of Trustees has adopted guidelines and delegated to the
Manager the daily function of determining and monitoring liquidity of restricted
securities. The Board, however, will retain sufficient oversight and be
responsible ultimately for the determinations. Since it is not possible to
predict with assurance exactly how this market for restricted securities sold
and offered under Rule 144A will develop, the Board will monitor carefully a
Fund's investments in securities, focusing on such important factors, among
others, as valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the level of illiquidity
in a Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. As a result, a Fund
might not be able to sell these securities when its Sub-Adviser wishes to do so,
or might have to sell them at less than fair value. In addition, market
quotations are less readily available. Therefore, judgment at times may play a
greater role in valuing these securities than in the case of unrestricted
securities.
INVESTMENTS IN MONEY MARKET SECURITIES (APPLICABLE TO ALL FUNDS)
Any Fund may hold at least a portion of its assets in cash equivalents or
money market instruments. There is always the risk that the issuer of a money
market instrument may be unable to make payment upon maturity.
35
--------------------------
Allmerica Investment Trust
<PAGE>
The Money Market Fund may hold uninvested cash reserves pending investment
during temporary, defensive periods or if, in the opinion of the Sub-Adviser,
suitable securities are not available for investment. Securities in which the
Money Market Fund may invest may not earn as high a level of current income as
long-term, lower quality securities which, however, generally have less
liquidity, greater market risk and more fluctuation in market value.
HIGH YIELD SECURITIES (APPLICABLE TO THE SELECT EMERGING MARKETS FUND, SELECT
CAPITAL APPRECIATION FUND, SELECT GROWTH FUND, SELECT GROWTH AND INCOME FUND AND
SELECT INCOME FUND)
Corporate debt securities purchased by the Select Emerging Markets Fund,
Select Capital Appreciation Fund, Select Growth Fund, Select Growth and Income
Fund and Select Income Fund will be rated at the time of purchase B or better by
Moody's or S&P, or equivalently rated by another NRSRO, or unrated but believed
by the Sub-Adviser to be of comparable quality under the guidelines established
for the Funds. The Select Growth Fund and the Select Growth and Income Fund may
not invest more than 15% of their assets, the Select Income Fund may not invest
more than 25% of its assets and the Select Emerging Markets Fund and Select
Capital Appreciation Fund may not invest more than 35% of their assets at the
time of investment in securities rated below Baa by Moody's or BBB by S&P, or
equivalently rated by another NRSRO, or unrated but believed by the Sub-Adviser
to be of comparable quality. Securities rated B by Moody's or S&P (or
equivalently by another NRSRO) are below investment grade and are considered, on
balance, to be predominantly speculative with respect to capacity to pay
interest and repay principal and will generally involve more credit risk than
securities in the higher rating categories.
Periods of economic uncertainty and changes can be expected to result in
increased volatility of market prices of lower-rated securities, commonly known
as "high yield" securities or "junk bonds," and of the asset value of the Select
Emerging Markets Fund, Select Capital Appreciation Fund, Select Growth Fund,
Select Growth and Income Fund and Select Income Fund. Many issuers of high yield
corporate debt securities are leveraged substantially at times, which may impair
their ability to meet debt service obligations. Also, during an economic
downturn or substantial period of rising interest rates, highly leveraged
issuers may experience financial stress.
The lack of a liquid secondary market in certain lower-rated securities may
have an adverse impact on their market price and the ability of a Fund to
dispose of particular issues when necessary to meet its liquidity needs or in
response to a specific economic event such as a deterioration in the credit-
worthiness of the issuer. In addition, a less liquid market may interfere with
the ability of a Fund to value accurately high yield securities and,
consequently, value a Fund's assets. Furthermore, adverse publicity and
investor perceptions may decrease the value and liquidity of high yield
securities. It is reasonable to expect any recession to disrupt severely the
market for high yield fixed-income securities, have an adverse impact on the
value of such securities and adversely affect the ability of the issuers of such
securities to repay principal and pay interest thereon. The market prices of
lower-rated securities are generally less sensitive to interest rate changes
than higher-rated investments, but more sensitive to adverse economic or
political changes or individual developments specific to the issuer. Periods of
economic or political uncertainty and change can be expected to result in
volatility of prices of these securities.
The Funds also may invest in unrated debt securities of foreign and domestic
issuers. Unrated debt, while not necessarily of lower quality than rated
securities, may not have as broad a market. Sovereign debt of foreign
governments generally is rated by country. Because these ratings do not take
into account individual factors relevant to each issue and may not be updated
regularly, the Sub-Adviser may treat such securities as unrated debt. Unrated
debt securities and securities with different ratings from more than one agency
will be included in the 15%, 25% and 35% limits of the Funds as stated above,
unless such Fund's Sub-Adviser deems such securities to be the equivalent of
investment grade securities. See the Appendix for a description of the bond
ratings.
ASSET-BACKED SECURITIES (APPLICABLE TO GROWTH FUND, SELECT GROWTH AND INCOME
FUND, SELECT INCOME FUND, INVESTMENT GRADE INCOME FUND, GOVERNMENT BOND FUND AND
MONEY MARKET FUND)
The Funds may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, frequently a pool of assets similar to one
another. Assets generating such payments include instruments such as motor
vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed for certain
amounts and time periods by a letter of credit issued by a financial institution
unaffiliated with the issuer of the securities. The estimated life of an asset-
backed security varies with the prepayment experience of the underlying debt
instruments. The rate of such prepayments, and hence the life of the asset-
backed security, will be primarily a function of current market rates, although
other economic and demographic factors will be involved. Under certain interest
rate and prepayment rate scenarios, the Funds may fail to recoup fully their
investment in asset-backed securities. A Fund will not invest more than 20% of
its total assets in asset-backed securities.
36
- --------------------------
Allmerica Investment Trust
<PAGE>
MORTGAGE-BACKED SECURITIES (APPLICABLE TO THE SELECT INCOME FUND, INVESTMENT
GRADE INCOME FUND AND GOVERNMENT BOND FUND)
The Funds may invest in mortgage-backed securities which are debt obligations
secured by real estate loans and pools of loans on single family homes, multi-
family homes, mobile homes and, in some cases, commercial properties. The Funds
may acquire securities representing an interest in a pool of mortgage loans that
are issued or guaranteed by a U.S. government agency such as Ginnie Mae, Fannie
Mae and Freddie Mac.
Mortgage-backed securities are in most cases "pass-through" instruments
through which the holder receives a share of all interest and principal payments
from the mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yields of a particular issue of pass-
through certificates. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When the mortgage obligations are prepaid, the Funds reinvest the prepaid
amounts in securities, the yield of which reflects interest rates prevailing at
the time. Moreover, prepayment of mortgages that underlie securities purchased
at a premium could result in losses.
The Funds also may invest in multiple class securities issued by U.S.
government agencies and instrumentalities such as Fannie Mae, Freddie Mac and
Ginnie Mae, including guaranteed collateralized mortgage obligations ("CMOs")
and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates, when consistent with the Funds' investment
objective, policies and limitations. A CMO is a type of bond secured by an
underlying pool of mortgages or mortgage pass-through certificates that are
structured to direct payment on underlying collateral to different series or
classes of obligations. A REMIC is a CMO that qualifies for special tax
treatment under the Internal Revenue Code and invests in certain mortgages
principally secured by interests in real property and other permitted
investments.
CMOs and guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by Fannie Mae, Freddie Mac and Ginnie Mae are types of multiple pass-
through securities. Investors may purchase beneficial interests in REMICs, which
are known as "regular" interests or "residual" interests. The Funds currently do
not intend to purchase residual interests in REMICs. The REMIC Certificates
represent beneficial ownership interests in a REMIC trust, generally consisting
of mortgage loans or Fannie Mae, Freddie Mac or Ginnie Mae guaranteed mortgage
pass-through certificates. The obligations of Fannie Mae or Freddie Mac under
their respective guaranty of the REMIC Certificates are obligations solely of
Fannie Mae or Freddie Mac, respectively.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are available otherwise.
For Freddie Mac REMIC Certificates, Freddie Mac guarantees the timely payment
of interest and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified residential mortgages or
participations therein purchased by Freddie Mac and placed in a PC pool. With
respect to principal payments on PCs, Freddie Mac generally guarantees ultimate
collection of all principal of the related mortgage loans without offset or
deduction. Freddie Mac also guarantees timely payment of principal on certain
PCs referred to as "Gold PCs."
Ginnie Mae REMIC Certificates guarantee the full and timely payment of
interest and principal on each class of securities (in accordance with the terms
of those classes). This Ginnie Mae guarantee is backed by the full faith and
credit of the United States.
REMIC Certificates issued by Fannie Mae, Freddie Mac and Ginnie Mae are
treated as U.S. government securities for purposes of investment policies. There
can be no assurance that the U.S. Government will continue to provide financial
support to Fannie Mae, Freddie Mac or Ginnie Mae in the future.
STRIPPED MORTGAGE-BACKED SECURITIES (APPLICABLE TO THE SELECT INCOME FUND,
INVESTMENT GRADE INCOME FUND AND GOVERNMENT BOND FUND)
The Funds may invest in stripped mortgage-backed securities ("SMBS"). SMBS are
derivative multiclass mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
SMBS usually are structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. One type of SMBS will have one class receiving some of the interest and
most of the principal from the mortgage
37
--------------------------
Allmerica Investment Trust
<PAGE>
assets, while the other class will receive most of the interest and the
remainder of the principal. In some cases, one class will receive all of the
interest (the interest-only or "IO" class) while the other class will receive
all of the principal (the principal-only or "PO" class). The yield to maturity
on an IO class is extremely sensitive to the rate of principal payments
(including prepayment on the related underlying mortgage assets), and a rapid
rate of principal payments may have a material, adverse effect on a portfolio
yield to maturity from these securities. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Funds may fail
to recoup fully their initial investment in these securities even if the
security is in one of the highest rating categories. Certain SMBS may be deemed
"illiquid" and subject to the Funds' limitations on investment in illiquid
securities. The market value of the PO class generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from mortgage assets generally are higher
than prevailing market yields in other mortgage-backed securities because their
cash flow patterns are more volatile and there is a greater risk that the
initial investment will not be recouped fully. The Sub-Adviser will seek to
manage these risks (and potential benefits) by investing in a variety of such
securities and by using certain hedging techniques.
HEDGING TECHNIQUES AND INVESTMENT PRACTICES (APPLICABLE TO THE SELECT EMERGING
MARKETS FUND, SELECT CAPITAL APPRECIATION FUND AND SELECT INTERNATIONAL EQUITY
FUND)
The Select Emerging Markets Fund, Select Capital Appreciation Fund and Select
International Equity Fund may employ certain strategies in order to manage
exchange rate risks. For example, the Funds may hedge some or all of their
investments denominated in a foreign currency against a decline in the value of
that currency. The Funds may enter into contracts to sell that foreign currency
for U.S. dollars (not exceeding the value of a Fund's assets denominated in or
exposed to that currency) or by participating in options on futures contracts
with respect to such currency ("position hedge"). The Funds also could hedge
that position by selling a second currency that is expected to perform similarly
to the currency in which portfolio investments are denominated for U.S. dollars
("proxy hedge"). The Funds also may enter into a forward contract to sell the
currency in which the security is denominated for a second currency that is
expected to perform better relative to the U.S. dollar if their Sub-Adviser
believes there is a reasonable degree of correlation between movements in the
two currencies ("cross-hedge"). As an operational policy, the Funds will not
commit more than 10% of their assets to the consummation of cross-hedge
contracts and either will cover currency hedging transactions with liquid
portfolio securities denominated in or whose value is tied to the applicable
currency or segregate liquid assets in the amount of such commitments. In
addition, when the Funds anticipate repurchasing securities denominated in a
particular currency, the Funds may enter into a forward contract to purchase
such currency in exchange for the dollar or another currency ("anticipatory
hedge").
These strategies minimize the effect of currency appreciation as well as
depreciation, but do not protect against a decline in the underlying value of
the hedged security. In addition, such strategies may reduce or eliminate the
opportunity to profit from increases in the value of the original currency and
may have an adverse impact on a Fund's performance if its Sub-Adviser's
projection of future exchange rates is inaccurate.
STAND-BY COMMITMENTS (APPLICABLE TO SELECT INCOME FUND, INVESTMENT GRADE INCOME
FUND, GOVERNMENT BOND FUND AND MONEY MARKET FUND)
Under a stand-by commitment, a dealer agrees to purchase from the Fund, at the
Fund's option, specified securities at a specified price. Stand-by commitments
are exercisable by the Fund at any time before the maturity of the underlying
security, and may be sold, transferred or assigned by the Fund only with respect
to the underlying instruments.
Although stand-by commitments are often available without the payment of any
direct or indirect consideration, if necessary or advisable, the Fund may pay
for a stand-by commitment either separately in cash or by paying a higher price
for securities which are acquired subject to the commitment.
Where the Fund pays any consideration directly or indirectly for a stand-by
commitment, its cost will be reflected as unrealized depreciation for the period
during which the commitment is held by the Fund.
The Fund will enter into stand-by commitments only with banks and broker-
dealers which present minimal credit risks. In evaluating the creditworthiness
of the issuer of a stand-by commitment, the Sub-Adviser will review periodically
the issuer's assets, liabilities, contingent claims and other relevant financial
information.
The Fund will acquire stand-by commitments solely to facilitate liquidity and
does not intend to exercise its rights thereunder for trading purposes. Stand-
by commitments will be valued at zero in determining the Fund's net asset value.
38
- --------------------------
Allmerica Investment Trust
<PAGE>
APPENDIX
Descriptions of Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Ratings Service, a division of McGraw-Hill Companies, Inc. ("S&P")
commercial paper and bond ratings:
COMMERCIAL PAPER RATINGS
MOODY'S EMPLOYS THREE DESIGNATIONS, ALL JUDGED TO BE INVESTMENT GRADE, TO
INDICATE THE RELATIVE REPAYMENT CAPACITY OF RATED ISSUERS. THE TWO HIGHEST
DESIGNATIONS ARE AS FOLLOWS:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity normally will be evidenced by the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This normally
will be evidenced by many of the characteristics cited above, but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be subject more
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
S&P COMMERCIAL PAPER RATINGS ARE GRADED INTO SEVERAL CATEGORIES, RANGING FROM
"A-1" FOR THE HIGHEST QUALITY OBLIGATIONS TO "D" FOR THE LOWEST. THE TWO
HIGHEST RATING CATEGORIES ARE DESCRIBED AS FOLLOWS:
A-1 - This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MUNICIPAL OBLIGATIONS
Moody's ratings for state and municipal and other short-term obligations will
be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in the short-term borrowing, while various factors of the first
importance in long-term borrowing risk are of lesser importance in the long run.
Symbols used will be as follows:
MIG-1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
A short-term rating also may be assigned on an issue having a demand feature.
Such ratings will be designated as VMIG to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event that demand is not met.
VMIG-1 and VMIG-2 ratings carry the same definitions as MIG-1 and MIG-2,
respectively.
39
--------------------------
Allmerica Investment Trust
<PAGE>
DESCRIPTION OF MOODY'S BOND RATINGS
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge". Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are known generally
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present that suggest a susceptibility to impairment some time in the
future.
Baa - Bonds that are rated Baa are considered to be medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.
Those bonds within the Aa, A, Baa, Ba, and B categories that Moody's believes
possess the strongest credit attributes within those categories are designated
by the symbols Aa1, A1, Baa1, Ba1, and B1.
DESCRIPTION OF S&P'S DEBT RATINGS
AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rates categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC, or C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation
and C the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
Plus (+) or (-): The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major categories.
40
- --------------------------
Allmerica Investment Trust
<PAGE>
ALLMERICA INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS. IT
SHOULD BE READ IN CONJUNCTION WITH THE APPLICABLE PROSPECTUS OF ALLMERICA
INVESTMENT TRUST DATED MAY 1, 1998. THE APPLICABLE PROSPECTUS MAY BE OBTAINED
FROM ALLMERICA INVESTMENT TRUST, 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS
01653, (508) 855-1000.
DATED: MAY 1, 1998
-----------------------------
Allmerica Investment Trust
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION............................................................................... 3
INVESTMENT OBJECTIVES AND POLICIES .............................................................. 3
INVESTMENT RESTRICTIONS........................................................................... 5
INVESTMENT TECHNIQUES............................................................................. 6
PORTFOLIO TURNOVER ............................................................................... 15
PERFORMANCE....................................................................................... 16
MANAGEMENT OF ALLMERICA INVESTMENT TRUST ......................................................... 19
CONTROL PERSON AND PRINCIPAL HOLDER OF SECURITIES ................................................ 21
INVESTMENT MANAGEMENT AND OTHER SERVICES ......................................................... 21
BROKERAGE ALLOCATION.............................................................................. 25
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED ..................................... 27
ORGANIZATION OF THE TRUST ....................................................................... 28
FINANCIAL STATEMENTS.............................................................................. 29
</TABLE>
2
- ---------------------------
Allmerica Investment Trust
<PAGE>
GENERAL INFORMATION
Allmerica Investment Trust (the "Trust") is an open-end, diversified series
investment company designed to provide the underlying investment vehicle for
various separate investment accounts established by First Allmerica Financial
Life Insurance Company ("First Allmerica") or Allmerica Financial Life Insurance
and Annuity Company ("Allmerica Financial Life"), an indirect, wholly-owned
subsidiary of First Allmerica. Shares of the Trust are not offered to the
general public but solely to such separate investment accounts ("Separate
Accounts").
The Trust is a Massachusetts business trust established on October 11,
1984. It currently is comprised of fourteen different portfolios: Select
Emerging Markets Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Value Opportunity Fund (formerly known as Small-Mid
Cap Value Fund), Select International Equity Fund, Select Growth Fund, Select
Strategic Growth Fund, Growth Fund, Equity Index Fund, Select Growth and Income
Fund, Select Income Fund, Investment Grade Income Fund, Government Bond Fund and
Money Market Fund (each, a "Fund"). Not all of the Funds are offered to each
Separate Account. The Trustees may create additional funds in the future.
INVESTMENT OBJECTIVES AND POLICIES
SELECT EMERGING MARKETS FUND seeks long-term growth of capital by investing in
the world's emerging markets.
SELECT AGGRESSIVE GROWTH FUND seeks above-average capital appreciation by
investing primarily in common stocks of companies which are believed to have
significant potential for capital appreciation.
SELECT CAPITAL APPRECIATION FUND seeks long-term growth of capital in a manner
consistent with the preservation of capital. Realization of income is not a
significant investment consideration and any income realized on the Fund's
investments will be incidental to its primary objective.
SELECT VALUE OPPORTUNITY FUND seeks long-term growth of capital by investing
primarily in a diversified portfolio of common stocks of small and mid-size
companies, whose securities at the time of purchase are considered by the
Sub-Adviser to be undervalued.
SELECT INTERNATIONAL EQUITY FUND seeks maximum long-term total return (capital
appreciation and income) primarily by investing in common stocks of established
non-U.S.companies.
SELECT GROWTH FUND seeks to achieve long-term growth of capital by investing in
a diversified portfolio consisting primarily of common stocks selected on the
basis of their long-term growth potential.
SELECT STRATEGIC GROWTH FUND seeks long-term growth of capital by investing
primarily in common stocks of established companies.
GROWTH FUND seeks to achieve long-term growth of capital through investments
primarily in common stocks and securities convertible into common stocks that
are believed to represent significant underlying value in relation to current
market prices. Realization of current income, if any, is incidental to this
objective.
EQUITY INDEX FUND seeks to achieve investment results that correspond to the
aggregate price and yield performance of a representative selection of common
stocks that are publicly traded in the United States.
SELECT GROWTH AND INCOME FUND seeks a combination of long-term growth of capital
and current income. The Fund will invest primarily in dividend-paying common
stocks and securities convertible into common stocks.
SELECT INCOME FUND seeks a high level of current income. The Fund will invest
primarily in investment grade, fixed-income securities.
INVESTMENT GRADE INCOME FUND seeks as high a level of total return, which
includes capital appreciation as well as income, as is consistent with prudent
investment management.
3
-----------------------------
Allmerica Investment Trust
<PAGE>
GOVERNMENT BOND FUND seeks high income, preservation of capital and maintenance
of liquidity primarily through investments in debt instruments issued or
guaranteed by the U.S. Government or its agencies or instrumentalities ("U.S.
Government securities") and in related options, futures and repurchase
agreements. Under normal conditions, at least 80% of the Fund's assets will be
invested in U.S. Government securities.
MONEY MARKET FUND seeks to obtain maximum current income consistent with
preservation of capital and liquidity.
A Fund's investment objective and its policies as listed above are not
fundamental and may be changed without the approval of a majority in interest of
the shareholders of that Fund. There is no assurance that a Fund's investment
objective will be realized.
For a description of the types of investments each Fund may acquire and
certain investment techniques it may utilize, see "Investment Objectives and
Policies" in the appropriate Prospectus for the underlying Funds of the
applicable Separate Account.
MORE INFORMATION ABOUT THE EQUITY INDEX FUND
The Equity Index Fund will attempt to replicate the investment results of
the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500") while
minimizing transactional costs and other expenses. Stocks in the S&P 500 are
ranked in accordance with their statistical weighting from highest to lowest.
The method used to select investments for the Equity Index Fund involves
investing in common stocks in approximately the order of their weighting in the
S&P 500, beginning with those having the highest weighting.
The Equity Index Fund will invest only in those stocks, and in such
amounts, as its investment adviser determines to be necessary or appropriate for
the Equity Index Fund to approximate the S&P 500. As the size of the Equity
Index Fund increases, the Equity Index Fund may purchase a larger number of
stocks included in the S&P 500, and the percentage of its assets invested in
most stocks included in the S&P 500 will approach the percentage that each such
stock represents in the S&P 500. However, there is no minimum or maximum number
of stocks included in the S&P 500 which the Equity Index Fund will hold. Under
normal circumstances, it is expected that the Equity Index Fund will hold
approximately 500 different stocks included in the S&P 500. The Equity Index
Fund may compensate for the omission of a stock that is included in the S&P 500,
or for purchasing stocks in other than the same proportions that they are
represented in the S&P 500, by purchasing stocks which are believed to have
characteristics which correspond to those of the omitted stocks.
The Equity Index Fund may invest in short-term debt securities to maintain
liquidity or pending investment in stocks. Such investments will not be made for
defensive purposes or in anticipation of a general decline in the market price
of stocks in which the Equity Index Fund invests; investors in the Equity Index
Fund bear the risk of general declines in the stock markets. The Equity Index
Fund also may take advantage of tender offers, resulting in higher returns than
are reflected in the performance of the S&P 500. In addition, the Equity Index
Fund may hold warrants, preferred stocks and debt securities, whether or not
convertible into common stock or with rights attached, if acquired as a result
of in-kind dividend distributions, mergers, acquisitions or other corporate
activity involving the common stocks held by the Equity Index Fund. Such
investment transactions and securities holdings may result in positive or
negative tracking error.
Although it does not intend presently to do so, the Equity Index Fund at
some time in the future may purchase or sell futures contracts on stocks indexes
for hedging purposes and in order to achieve a fully invested position while
maintaining sufficient liquidity to meet possible net redemptions. The
effectiveness of a strategy of investing in stock index futures contracts will
depend upon the continued availability of futures contracts based on the S&P 500
or which tend to move together with stocks included in the S&P 500. The Equity
Index Fund would not enter into futures contacts on stock indexes for
speculative purposes.
Standard & Poor's Corporation is not in any way affiliated with the Equity
Index Fund or the Trust. "Standard & Poor's," "Standard & Poor's 500," and "500"
are trademarks of Standard & Poor's Corporation.
4
- ---------------------------
Allmerica Investment Trust
<PAGE>
MORE INFORMATION ABOUT THE GOVERNMENT BOND FUND
The Government Bond Fund will invest in obligations issued or guaranteed by
the U.S. Government, its agencies and instrumentalities, and options and futures
thereon, as described in the Prospectus. The securities in which the Government
Bond Fund may invest include, but are not limited to, U.S. Treasury bills, notes
and bonds and obligations of the following: Banks for Cooperatives, the
Commodity Credit Corporation, the Federal Deposit Insurance Corporation, Federal
Farm Credit Banks, the Federal Financing Bank, Federal National Mortgage
Association, the General Insurance Fund, Government National Mortgage
Association, Government Services Administration (GSA Public Building Trust
Participation Certificates), the Production Credit Association, the Student Loan
Marketing Association, the Tennessee Valley Authority and the U.S. Postal
Service.
The Government Bond Fund may invest in mortgage-backed securities
(including pass-through securities) and participation certificates) of the
Government National Mortgage Association ("Ginnie Mae"), the Federal Home Loan
Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage
Association ("Fannie Mae").
Ginnie Mae certificates are mortgage-backed securities representing part
ownership of a pool of mortgage loans. The mortgage loans are issued by lenders
such as mortgage bankers, commercial banks and savings and loan associations,
and are either insured by the Federal Housing Administration or guaranteed by
the Veterans Administration. After approval of the pool by Ginnie Mae,
certificates in the pool are offered to investors by securities dealers. Once
the pool has been approved by Ginnie Mae, the timely payment of interest and
principal on the certificates is guaranteed by the full faith and credit of the
U.S. Government. The certificates are "pass through" securities because a pro
rata share of regular interest and principal payments, as well as unscheduled
early prepayments, on the underlying mortgage pool is passed through monthly to
the Fund.
Freddie Mac, a corporate instrumentality of the U.S. Government created by
Congress to increase the availability of mortgage credit for residential
housing, issues participation certificates representing undivided interests in
Freddie Mac's mortgage portfolio. While Freddie Mac guarantees the timely
payment of interest and ultimate collection of the principal of its
participation certificates, the participation certificates are not backed by the
full faith and credit of the U.S. Government. The "pass-through" characteristics
of Freddie Mac participation certificates are similar to Ginnie Mae
certificates, but Freddie Mac certificates differ from Ginnie Mae certificates
in that Freddie Mac mortgages are primarily conventional residential mortgages
rather than mortgages issued or guaranteed by a federal agency or
instrumentality.
Fannie Mae is a federally chartered corporation owned by private
stockholders. Fannie Mae purchases both conventional and federally insured or
guaranteed residential mortgages form various entities, and packages pools of
such mortgages in the form of pass-through certificates. Fannie Mae guarantees
the timely payment of principal and interest. Fannie Mae is authorized to borrow
from the U.S. Treasury to meet its obligations, but the certificates are not
backed by the full faith and credit of the U.S. Government.
The effective maturity of a mortgage-backed security may be shortened by
unscheduled or early payments of principal and interest on the underlying
mortgages, which may affect their effective yield. When the Government Bond Fund
receives the monthly "pass-through" payments (which may include unscheduled
prepayments of principal) it may be able to invest the payments only at a lower
rate of interest. During periods of declining interest rates, such securities
therefore may be less effective as a means of "locking in" attractive long-term
interest rates and may have less potential for appreciation than conventional
bonds with comparable stated maturities.
INVESTMENT RESTRICTIONS
The following is a description of certain restrictions on investments of
the Funds (in addition to those described in the Prospectus). The investment
restrictions numbered 1 through 7 are fundamental and may not be changed without
the approval of a majority in interest of the shareholders of that Fund. The
other investment restrictions are not deemed fundamental and may be changed by
the Trustees. The following investment restrictions apply to each Fund, except
as noted:
1. The Fund will not issue "senior securities" as defined in Section 18(g)
of the Investment Company Act of 1940.
5
-----------------------------
Allmerica Investment Trust
<PAGE>
2. The Fund will not borrow money, except in accordance with the
provisions of the 1940 Act and for temporary purposes when the aggregate amount
borrowed does not exceed 33 1/3% of the value of the Fund's total assets at the
time such borrowing is made. In general, a borrowing shall be regarded as being
for temporary purposes if it is repaid within 60 days and is not extended or
renewed.
3. The Fund will not act as an underwriter except to the extent that, in
connection with the disposition of portfolio securities, it may be deemed to be
an underwriter under certain federal securities laws.
4. The Fund will not buy or sell real estate or interest in real estate,
although it may purchase and sell (a) securities which are secured by real
estate and (b) securities of companies which invest or deal in real estate.
5. The Fund will not engage in the purchase and sale of physical
commodities or contracts relating to physical commodities.
6. The Fund may make loans to other persons only through repurchase
agreements and securities lending. For purposes of this paragraph, the purchase
of an issue of publicly distributed bonds, debentures, or other debt securities,
whether or not the purchase was made upon the original issue of the securities,
is not to be considered the making of a loan by the Fund.
7. The Fund will not purchase securities on margin but may obtain such
short-term credits as are necessary for clearance transactions, and (except for
the Money Market Fund) may make margin payments in connection with financial
futures (including securities index futures) contracts, and options on such
future contracts and in the case of the Select Capital Appreciation Fund,
futures contracts on foreign currencies and related options. The Fund will not
participate on a joint or joint and several basis in any trading account in
securities or effect a short sale of securities.
8. The Fund does not intend to invest in companies for the purpose of
exercising control or management.
9. The Fund may invest in the securities of one or more other investment
companies. No such investment shall be made if as a result thereof the Fund
would own more than 3% of the total outstanding voting stock of any one
investment company, or more than 5% of the Fund's assets would be invested in
any one investment company, or more than a total of 10% of the Fund's assets
would be invested in investment company securities. Purchase of such securities
will be made only in the open market where no commission or profit to a sponsor
or dealer results from such purchase other than the customary broker's
commission or as part of a merger, consolidation, or plan of reorganization.
10. The Fund intends to purchase securities for investment and not to
purchase and sell them for trading purposes, except that the Select Capital
Appreciation Fund and the Government Bond Fund may engage in short term trading
of U.S. Government securities.
11. The Fund (except the Money Market Fund) may engage in transactions in
financial futures contracts and related options. The Money Market Fund will not
engage in transactions in financial futures or related options.
INVESTMENT TECHNIQUES
In managing its portfolios of investments, the Trust may make use of the
following investment techniques:
SECURITIES LENDING
Each Fund may loan its portfolio securities to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by cash, cash
equivalents or securities issued or guaranteed by the United States government
or its agencies, or any combination of cash, cash equivalents and such
securities as collateral equal at all times to at least the market value of the
securities loaned. Such loans are not made if, as a result, the aggregate of all
outstanding loans would exceed 33 1/3% of the value of the Fund's total assets
taken at current value. The Fund continues to receive interest or dividends on
the securities loaned, and simultaneously earns interest on the investment of
the loan collateral in U.S. Treasury securities, certificates of deposit or
other high-grade, short-term obligations or interest-bearing cash equivalents or
receives a fee from the borrower. Although voting rights, or rights to consent,
attendant to securities lent pass to the borrower, such loans may be called at
any time and may be called so that the securities may be voted by the Fund if a
material event affecting the investment is to occur. There may be risks of delay
in recovery of the securities
6
- ---------------------------
Allmerica Investment Trust
<PAGE>
or even loss of rights in the collateral should the borrower of the securities
fail financially. However, loans are made only to firms deemed by the Fund's
Sub-Adviser to be of good standing, and when, in the judgment of the Fund's Sub-
Adviser, the consideration which can be earned currently from such securities
loans justifies the attendant risk.
FOREIGN SECURITIES
Each Fund except the Government Bond Fund may purchase foreign securities.
The Money Market Fund may invest only in U.S. dollar denominated foreign
securities. Securities of foreign issuers, particularly non-governmental
issuers, involve risks which are not associated ordinarily with investing in
domestic issuers. These risks include changes in currency exchange rates and
currency exchange control regulations. In addition, investments in foreign
countries could be affected by other factors generally not thought to be present
in the United States, including the unavailability of financial information or
the difficulty of interpreting financial information prepared under foreign
accounting standards, less liquidity and more volatility in foreign markets, the
possibility of expropriation, the possibility of heavy taxation, the impact of
political, social or diplomatic developments, limitations on the removal of
funds or other assets of a Fund, difficulties in evoking legal process abroad
and enforcing contractual obligations, and the difficulty of assessing economic
trends in foreign countries.
FORWARD COMMITMENTS
The Select Capital Appreciation Fund, Select Income Fund, Investment Grade
Income Fund, Government Bond Fund and Money Market Fund may enter into contracts
to purchase securities for a fixed price at a specified future date beyond
customary settlement time ("forward commitments"). If the Funds do so, they will
maintain cash or other liquid obligations having a value in an amount at all
times sufficient to meet the purchase price. Forward commitments involve a risk
of loss if the value of the security to be purchased declines prior to the
settlement date. Although the Funds generally will enter into forward
commitments with the intention of acquiring securities for their portfolio, they
may dispose of a commitment prior to settlement if their Sub-Adviser deems it
appropriate to do so. The Funds may realize short-term gains or losses upon the
sale of forward commitments. The Sub-Adviser will monitor the creditworthiness
of the parties to such forward commitments.
WHEN-ISSUED SECURITIES
Each Fund from time to time may purchase securities on a "when-issued"
basis. Debt securities and municipal obligations often are issued on this basis.
The yield of such securities is fixed at the time a commitment to purchase is
made, with actual payment and delivery of the security generally taking place 15
to 45 days later. During the period between purchase and settlement, typically
no payment is made by a Fund and no interest accrues to the Fund. The market
value of when-issued securities may be more or less than the purchase price
payable at settlement date. The Fund will establish a segregated account with
the Custodian in which it will maintain cash or liquid securities at least equal
to commitments for when-issued securities.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements. Under a repurchase
agreement, a Fund may purchase an obligation of or guaranteed by the United
States Government, its agents or instrumentalities, with an agreement that the
seller will repurchase the obligation at an agreed upon price and date. The
repurchase price reflects an agreed-upon interest rate which is unrelated to the
coupon rate on the purchased obligation. Repurchase agreements usually are for
short periods, such as under one week, but may be as long as thirty days. No
repurchase agreement will be effected if, as a result, more than 30% of a Fund's
total assets taken at current value will be invested in repurchase agreements.
No more than 15% (10% for the Money Market Fund) of a Fund's total assets taken
at current value will be invested in repurchase agreements extending for more
than seven days and in other securities which are not readily marketable.
If a seller defaults upon the obligation to repurchase, the Funds may incur
a loss if the value of the purchased obligation (collateral) declines, and may
incur disposition costs in liquidating the collateral. If bankruptcy proceedings
are commenced with respect to a seller, realization upon the collateral by the
Funds may be delayed or limited.
Prior to entering into a repurchase agreement, the Fund's Sub-Adviser
evaluates the creditworthiness of entities with which the Fund proposes to enter
into the repurchase agreement. The Trustees have established guidelines and
7
-----------------------------
Allmerica Investment Trust
<PAGE>
standards of review for the evaluation of creditworthiness by the Funds'
Sub-Advisers and monitor such Sub-Advisers' actions with respect to repurchase
transactions.
The Select Capital Appreciation Fund also may enter into reverse repurchase
agreements. In a reverse repurchase agreement, a fund sells a portfolio security
to another party, such as a bank or broker-dealer, in return for cash and agrees
to repurchase the instrument at a particular price and at a future date. While a
reverse repurchase agreement is outstanding, the Fund will maintain cash and
appropriate liquid assets in a segregated custodial account to cover its
obligation under the reverse repurchase agreement. The Select Capital
Appreciation Fund will enter into reverse repurchase agreements only with
parties that its Sub-Adviser deems creditworthy.
WRITING COVERED OPTIONS
Each Fund other than the Money Market Fund may write call options and put
options on securities which the Fund owns as its Sub-Adviser shall determine to
be appropriate and to the extent permitted by applicable law. A call option
gives the purchaser of the option the right to buy and a writer the obligation
to sell the underlying security at the exercise price at any time prior to the
expiration of the option, regardless of the market price of the security during
the option period. A premium is paid to the writer as the consideration for
undertaking the obligations under the option contract. The writer forgoes the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price except insofar as the premium represents such
a profit.
As the writer of a call option, a Fund receives a premium for undertaking
the obligation to sell the underlying security at a fixed price during the
option period if the option is exercised. So long as the Fund remains obligated
as the writer of a call, it forgoes the opportunity to profit from increases in
the market price of the underlying security above the exercise price of the
option, except insofar as the premium represents such a profit, and retains the
risk of loss should the value of the security decline. The Fund also may enter
into "closing purchase transactions" in order to terminate its obligation as the
writer of a call option prior to the expiration of the option. There is no
assurance that a Fund will be able to effect such transactions at any particular
time or at any acceptable price.
The writer of a put option is obligated to purchase specified securities
from the option holder at a specified price at any time before the expiration
date of the option. The purpose of writing such options is to generate
additional income for the Fund, but the Fund accepts the risk that it will be
required to purchase the underlying securities at a price in excess of the
securities' market value at the time of purchase.
Option transactions may increase a Fund's transaction costs and may
increase the portfolio turnover rate, depending on how many options written by
the Fund are exercised in a particular year.
PURCHASING OPTIONS
Each Fund other than the Money Market Fund may purchase put and call
options to the extent permitted by applicable law. A Fund will not purchase put
or call options if after such purchase more than 5% of its net assets, as
measured by the aggregate of the premiums paid for all such options held by the
Fund, would be so invested. A Fund would also be able to enter into closing sale
transactions in order to realize gains or minimize losses on exchange traded
options purchased by the Fund.
A Fund normally would purchase call options in anticipation of an increase
in the market value of securities. The purchase of a call option entitles the
Fund, in return for the premium paid, to purchase specified securities at a
specified price during the option period. If the value of such securities
exceeded the sum of the exercise price, the premium paid and transaction costs
during the option period, the Fund would ordinarily realize a gain, if not, the
Fund would realize a loss.
A Fund normally would purchase put options in anticipation of a decline in
the market value of securities in its portfolio ("protective puts") or
securities of the type in which it may invest. The purchase of a put option
would entitle the Fund, in exchange for the premium paid, to sell specified
securities at a specified price during the option period. Gains or losses on the
purchase of put options would tend to be offset by countervailing changes in the
value of underlying portfolio securities. A Fund ordinarily would realize a gain
if, during the option period, the value of the underlying securities decreased
below the exercise price sufficiently to cover the premium and transaction
costs; otherwise, the Fund would realize a loss on the purchase of the put
option.
8
- ---------------------------
Allmerica Investment Trust
<PAGE>
There is no assurance that a liquid secondary market on an options exchange
will exist for a particular option or at a particular time. The hours of trading
for options on options exchanges may not conform to the hours during which the
underlying securities are traded. To the extent that the option markets close
before the markets for the underlying securities, significant price and rate
movements can take place in the underlying securities markets that cannot be
reflected in the option markets. In addition, the purchase of options is a
highly specialized activity which depends in part on the Sub-Adviser's ability
to predict future price fluctuations and the degree of correlation between the
options and securities markets. A Fund pays brokerage commission or spread in
connection with its options transactions as well as for purchases and sales of
the underlying securities.
FINANCIAL FUTURES CONTRACTS AND RELATED OPTIONS
Each Fund (other than the Money Market Fund) may invest in transactions in
financial futures contracts and related options for hedging purposes. In
addition, the Select Emerging Markets Fund, Select Capital Appreciation Fund,
Select International Equity Fund and Select Income Fund may utilize futures
contracts on foreign currencies and related options. Through certain hedging
activities involving such futures contracts and related options, it is possible
to reduce the effects of fluctuations in interest rates and the market prices of
securities which may be quite volatile. Hedging is a means of transferring a
risk which an investor does not desire to assume during an uncertain interest
rate or securities market environment to another investor who is willing to
assume that risk.
The Select Emerging Markets Fund, Select Capital Appreciation Fund, Select
International Equity Fund and Select Income Fund may buy and write options on
foreign currencies in a manner similar to that in which futures or forward
contracts on foreign currencies will be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated will reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Select Emerging Markets
Fund, Select Capital Appreciation Fund, Select International Equity Fund and
Select Income Fund may buy put options on the foreign currency. If the value of
the currency declines, the Funds will have the right to sell such currency for a
fixed amount in U.S. dollars and will offset, in whole or in part, the adverse
effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Select Emerging Markets Fund, Select Capital
Appreciation Fund, Select International Equity Fund and Select Income Fund may
buy call options thereon. The purchase of such options could offset, at least
partially, the effects of the adverse movements in exchange rates. As in the
case of other types of options, however, the benefit to the Funds from purchases
of foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, if currency exchange rates do not move
in the direction or to the extent desired, the Select Emerging Markets Fund,
Select Capital Appreciation Fund, Select International Equity Fund and Select
Income Fund could sustain losses on transactions in foreign currency options
that would require such Funds to forgo a portion or all of the benefits of
advantageous changes in those rates.
The Select Emerging Markets Fund, Select Capital Appreciation Fund, Select
International Equity Fund and Select Income Fund also may write options on
foreign currencies. For example, to hedge against a potential decline in the
U.S. dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates, the Funds could write a call option on the
relevant currency instead of purchasing a put option. If the expected decline
occurs, the option will most likely not be exercised and the diminution in value
of portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, the Select
Emerging Markets Fund, Select Capital Appreciation Fund, Select International
Equity Fund and Select Income Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will expire unexercised
and allow the Funds to hedge the increased cost up to the amount of the premium.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium. If exchange rates do not move in the expected direction, the option may
be exercised and the Funds would be required to buy or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Select Emerging Markets Fund,
Select Capital Appreciation Fund, Select International Equity Fund and Select
Income Fund also may
9
-----------------------------
Allmerica Investment Trust
<PAGE>
lose all or a portion of the benefits which might otherwise have been obtained
from favorable movements in exchange rates.
The Select Emerging Markets Fund, Select Capital Appreciation Fund, Select
International Equity Fund and Select Income Fund may write covered call options
on foreign currencies. A call option written on a foreign currency by the Funds
is "covered" if the Funds own the underlying foreign currency covered by the
call or have an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash consideration held
in a segregated account by the Fund's custodian) upon conversion or exchange of
other foreign currency held in their portfolios. A call option also is covered
if the Funds have a call on the same foreign currency and in the same principal
amount as the call written if the exercise price of the call held (i) is equal
to or less than the exercise price of the call written or (ii) is greater than
the exercise price of the call written, if the difference is maintained by the
Funds in cash or other liquid assets in a segregated account with the Funds'
custodian.
The Select Emerging Markets Fund, Select Capital Appreciation Fund, Select
International Equity Fund and Select Income Fund also may write call options on
foreign currencies for cross-hedging purposes that would not be deemed to be
covered. A call option on a foreign currency is for cross-hedging purposes if it
is not covered but is designed to provide a hedge against a decline due to an
adverse change in the exchange rate in the U.S. dollar value of a security that
the Funds own or have the right to acquire and that is denominated in the
currency underlying the option. In such circumstances, the Select Emerging
Markets Fund, Select Capital Appreciation Fund, Select International Equity Fund
and Select Income Fund collateralize the option by segregating cash or other
liquid assets in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked-to-market daily. The Select Emerging Markets
Fund, Select Capital Appreciation Fund, Select International Equity Fund and
Select Income Fund may invest without limitation in foreign currency options.
GENERAL INFORMATION
A futures contract on a security is a standardized agreement under which
each party is entitled and obligated either to make or to accept delivery, at a
particular time, of securities having a specified face value and rate of return
on foreign currencies. Currently, futures contracts are available on debt and
equity securities and on certain foreign currencies.
Futures contracts are traded on exchanges that are licensed and regulated
by the Commodity Futures Trading Commission ("CFTC"). A futures contract on an
individual security may be deemed to be a commodities contract. A Fund engaging
in a futures transaction initially will be required to deposit and maintain with
its Custodian, in the name of its brokers, an amount of cash or U.S. Treasury
bills equal to a small percentage (generally less than 5%) of the contract
amount to guarantee performance of its obligations. This amount is known as
"initial margin." Margin in a futures transaction is different from margin in a
securities transaction, in that financial futures initial margin does not
involve the borrowing of funds to finance the transactions. Unlike securities
margin, initial margin in a futures transaction is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
fund upon termination of the financial future, assuming all contractual
obligations have been satisfied. As the price of the underlying security
fluctuates, making the position in the financial futures more or less valuable,
subsequent payments called "maintenance margin" or "variation margin" are made
to and from the broker on a daily basis. This process is called "marking to
market."
The purchase and sale of financial futures is for the purpose of hedging
against changes in securities prices or interest rates. Hedging transaction
serve as a substitute for transactions in the underlying securities and can
effectively reduce investment risk. When prices are expected to rise, a fund,
through the purchase of futures contracts, can attempt to secure better prices
than might be later available in the stock market when it anticipates effecting
purchases.
Similarly, when interest rates are expected to increase, a fund can seek to
offset a decline in the value of its debt securities through the sale of futures
contracts.
OPTIONS ON FINANCIAL FUTURES
The Funds other than the Money Market Fund may use options on futures
contracts in connection with hedging strategies. The purchase of put options on
futures contracts is a means of hedging the Fund's portfolio against the risk of
declining prices. The purchase of a call option on a futures contract represents
a means of hedging against a market
10
- ---------------------------
Allmerica Investment Trust
<PAGE>
advance when a Fund is not invested fully. Depending on the pricing of the
option compared with either the futures contract upon which it is based or upon
the price of the underlying securities, the option may or may not be less risky
than ownership of the futures contract or underlying securities.
The writing of a call option on a futures contract may constitute a partial
hedge against declining prices of the securities or currencies which are
deliverable upon exercise of the futures contract. If the futures price at
expiration is below the exercise price, a Fund will retain the full amount of
the option premium, which provides a partial hedge against any decline that may
have occurred in the Fund's holding of securities or currencies.
The writing of a put option on a futures contract is analogous to the
purchase of a futures contract. If the option is exercised, the net cost to the
Fund of the securities or currencies acquired by it will be reduced by the
amount of the option premium received. If, however, market prices have declined,
the Fund's purchase price upon exercise may be greater than the price at which
the securities or currencies might be purchased in the cash market.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES AND RELATED OPTIONS
A Fund generally will engage in transactions in futures contracts or
related options only as a hedge against changes in the values of securities or
currencies held in a Fund's portfolio or which it intends to purchase, or to a
limited extent to engage in non-hedging strategies. A Fund may not purchase or
sell a futures contract for non-hedging purposes if immediately thereafter the
sum of the amount of margin deposits and amount of variation margins paid from
time to time on the Fund's existing futures and related options positions and
premiums paid for related options would exceed 5% of the market value of the
Fund's total assets. The reasons a Fund may engage in non-hedging strategies
include: to seek to enhance return and to adjust efficiently the Fund's overall
exposure to certain markets. In instances involving the purchase of futures
contracts or call options thereon or the writing of put options thereon by a
Fund, an amount of cash and cash equivalents, equal to the market value of the
futures contracts and related options (less any related margin deposits), will
be deposited in a segregated account with its custodian in the name of the
broker to collateralize the position, and thereby insure that the use of such
futures contracts and options is unleveraged.
In implementing a Fund's overall risk management strategy, it is possible
that its Sub-Adviser will choose not to engage in any futures transactions or
that appropriate futures contracts or related options may not be available. A
Fund will engage in futures transactions only for appropriate hedging, risk
management or non-hedging purposes. A Fund will not enter into any particular
futures transaction unless its Sub-Adviser determines that the particular
transaction demonstrates an appropriate correlation with the Fund's investment
objectives and portfolio securities.
RISK OF TRANSACTIONS IN FUTURES
The sale and purchase of futures contracts is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. There are several risks in
connection with the use of financial futures by a Fund as a hedging device.
Successful use of financial futures by a Fund is subject to its
Sub-Adviser's ability to predict movements in the direction of interest rates or
securities prices and to assess other factors affecting markets for securities.
For example, a Fund may hedge against the possibility of an increase in interest
rates which would affect adversely the prices of debt securities held in its
portfolio. If prices of the debt securities increase instead, the Fund may lose
part or all of the benefit of the increased value of the hedged debt securities
because it may have offsetting losses in the futures positions. In addition, in
this situation, if the Fund has insufficient cash, it may have to sell
securities to meet the daily maintenance margin requirements. These sales may
be, but will not necessarily be, at increased prices to reflect the rising
market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
Another risk arises because of the imperfect correlation between movements
in the price of the financial future and movements in the price of the
securities or currencies which are the subject of the hedge. First of all, the
hours of trading for futures contracts may not conform to the hours during which
the underlying assets are traded. To the extent that the futures markets close
before the markets for the underlying assets, significant price and rate
movements can take place in the underlying asset's market that cannot be
reflected in the futures markets. But even during identical trading hours, the
price of the future may move more than or less than the price of the assets
being hedged. While a hedge will not be fully effective if the price of the
future moves less that the price of the hedged assets, if the price of the
hedged assets has moved in an unfavorable direction, the Fund would be in a
better position than if it had not
11
-----------------------------
Allmerica Investment Trust
<PAGE>
hedged at all. On the other hand, if the price of the hedged assets has moved in
a favorable direction, this advantage may be offset partially by the price
movement of the futures contract. If the price of the futures moves more than
the price of the asset, the Fund will experience either a loss or a gain on the
futures contract which will not be completely offset by movements in the prices
of the assets which are the subject of the hedge.
In addition to the possibility that there may be an imperfect correlation
at all, between movements in the futures and the portion of the portfolio being
hedged, the market prices of the futures may be affected by certain other
factors. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures through offsetting
transaction, which could distort the normal relationship between securities or
currencies and futures markets. Secondly, from the point of view of speculators,
the deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price or currency
distortions. Due to the possibility of price distortion in the futures market
and because of the imperfect correlation between movements in the prices of
securities or currencies and movements in the prices of futures, a correct
forecast of interest rate trends or market price movements by the Sub-Adviser
still may not result in a successful hedging transaction over a short time
frame.
Positions in futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Funds intend to purchase or sell futures only on exchanges or boards of trade
where there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time. Thus, it may not be possible to
close a futures position, and, in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of maintenance margin.
However, in the event futures have been used to hedge portfolio positions, such
underlying assets will not be sold until the futures can be terminated. In such
circumstances, an increase in the price of the underlying assets, if any, may
offset partially or completely losses on the future.
RISKS OF TRANSACTIONS IN OPTIONS ON FUTURES
There are several special risks relating to options on futures. First, the
ability to establish and close out positions in options is subject to the
maintenance of a liquid secondary market. A Fund will not purchase options on
futures on any exchange or board of trade unless, in the opinion of its
Sub-Adviser, the market for such options is developed sufficiently so that the
risks in connection with options on futures transactions are not greater than
the risks in connection with futures transactions. Compared with the purchase or
sale of futures, the purchase of call or put options on futures involves less
potential risk to the Fund because the maximum amount at risk is the premium
paid for the options (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on futures would result
in a loss to the Fund when the purchase or sale of a future would not, such as
when there is no movement in the price of the underlying securities. The writing
of an option on a futures contract involves risks similar to those risks
relating to the sale of futures contracts, as described above under "Risks of
Transactions in Futures."
An option position may be closed out only on an exchange or board of trade
which provides a secondary market for an option of the same series. Although a
Fund generally will purchase only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market
will exist for any particular option or at any particular time. It might not be
possible to effect closing transactions in particular options, with the result
that the Fund would have to exercise its options in order to realize any profit
and would incur transaction costs upon the sale of financial futures pursuant to
the exercise of put options.
Because of the risks and the transaction costs associated with hedging
activities, there can be no assurance that a Fund's portfolio will perform as
well as or better than a comparable fund that does not invest in futures
contracts or related options.
FORWARD CONTRACTS ON FOREIGN CURRENCIES
A forward contract is an agreement between two parties in which one party
is obligated to deliver a stated amount of a stated asset at a specified time in
the future and the other party is obligated to pay a specified invoice amount
for the assets at the time of delivery. The Select Emerging Markets Fund, Select
Capital Appreciation Fund, Select International Equity Fund and Select Income
Fund may enter into forward contracts to purchase and sell government
securities, foreign currencies or other financial instruments. Forward contracts
generally are traded in an interbank
12
- ---------------------------
Allmerica Investment Trust
<PAGE>
market conducted directly between traders (usually large commercial banks) and
their customers. Unlike futures contracts which are standardized contracts,
forward contracts can be drawn specifically to meet the needs of the parties
that enter into them. The parties to a forward contract may agree to offset or
terminate the contract before its maturity, or may hold the contract to maturity
and complete the contemplated exchange. The following discussion summarizes the
Select Emerging Markets Fund's, Select Capital Appreciation Fund's, Select
International Equity Fund's and Select Income Fund's principal uses of forward
currency exchange contracts ("forward currency contracts"). The Funds may enter
into a forward currency contract with the stated contract value of up to the
value of the Funds' assets. A forward currency contract is an obligation to buy
or sell an amount of a specified currency for an agreed price (which may be in
U.S. dollars or a foreign currency). The Select Emerging Markets Fund, Select
Capital Appreciation Fund, Select International Equity Fund and Select Income
Fund will exchange foreign currencies for U.S. dollars and for other foreign
currencies in the normal course of business and may buy and sell currencies
through forward currency contracts in order to fix a price for securities they
have agreed to buy or sell ("transaction hedge"). The Select Emerging Markets
Fund, Select Capital Appreciation Fund, Select International Equity Fund and
Select Income Fund also may hedge some or all of their investments denominated
in foreign currency against a decline in the value of that currency relative to
the U.S. dollar by entering into forward currency contracts to sell an amount of
that currency (or a proxy currency whose performance is expected to replicate or
exceed the performance of that currency relative to the U.S. dollar)
approximating the value of some or all of their portfolio securities denominated
in that currency ("position hedge") or by participating in options or futures
contracts with respect to the currency. The Funds also may enter into a forward
currency contract with respect to a currency where the Funds are considering the
purchase or sale of investments denominated in that currency but have not yet
selected the specific investments ("anticipatory hedge").
In any of these circumstances, the Select Emerging Markets Fund, Select
Capital Appreciation Fund, Select International Equity Fund and Select Income
Fund may enter alternatively into a forward currency contract to purchase or
sell one foreign currency for a second currency that is expected to perform more
favorably relative to the U.S. dollar if their Sub-Advisers believe there is a
reasonable degree of correlation between movements in the two currencies
("cross-hedge").
These types of hedges minimize the effect of currency appreciation as well
as depreciation, but do not eliminate fluctuations in the underlying U.S. dollar
equivalent value of the proceeds of or rates of return on such Funds' foreign
currency denominated portfolio securities. The matching of the increase in value
of a forward contract and the decline in the U.S. dollar equivalent value of the
foreign currency denominated asset that is the subject of the hedge generally
will not be precise. Shifting the Funds' currency exposure from one foreign
currency to another removes the Funds' opportunity to profit from increases in
the value of the original currency and involves a risk of increased losses to
the Funds if their Sub-Advisers' projections of future exchange rates is
inaccurate. Proxy hedges and cross-hedges may result in losses if the currency
used to hedge does not perform similarly to the currency in which hedged
securities are denominated. Unforeseen changes in currency prices may result in
poorer overall performance for the Select Emerging Markets Fund, Select Capital
Appreciation Fund, Select International Equity Fund and Select Income Fund than
if they had not entered into such contracts.
The Select Emerging Markets Fund, Select Capital Appreciation Fund, Select
International Equity Fund and Select Income Fund will cover outstanding forward
currency contracts by maintaining liquid portfolio securities denominated in or
whose value is tied to the currency underlying the forward contract or the
currency being hedged. To the extent that the Select Emerging Markets Fund,
Select Capital Appreciation Fund, Select International Equity Fund and Select
Income Fund are not able to cover their forward currency positions with
underlying portfolio securities, the Funds' custodian will segregate cash or
liquid assets having a value equal to the aggregate amount of its commitments
under forward contracts entered into with respect to position hedges,
cross-hedges and anticipatory hedges. If the value of the securities used to
cover a position or the value of segregated assets declines, the Select Emerging
Markets Fund, Select Capital Appreciation Fund, Select International Equity Fund
and Select Income Fund will find alternative cover or segregate additional cash
or liquid assets on a daily basis so that the value of the covered segregated
assets will be equal to the amount of the Funds' commitments with respect to
such contracts. As an alternative to segregating assets, the Select Emerging
Markets Fund, Select Capital Appreciation Fund, Select International Equity Fund
and Select Income Fund may buy call options permitting it to buy the amount of
foreign currency being hedged by a forward sale contract or the Funds may buy
put options permitting them to sell the amount of foreign currency subject to a
forward buy contract.
While forward contracts currently are not regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contracts. In such event,
the Select Emerging Markets Fund's, Select Capital Appreciation Fund's, Select
International Equity Fund's and Select Income Fund's ability to utilize forward
contracts may be restricted. In addition, the Select Emerging Markets Fund,
Select Capital Appreciation Fund, Select International Equity Fund and Select
Income Fund
13
-----------------------------
Allmerica Investment Trust
<PAGE>
may not always be able to enter into forward contracts at attractive prices and
may be limited in their ability to use these contracts to hedge portfolio
assets.
SWAP AND SWAP-RELATED PRODUCTS
The Select Capital Appreciation Fund may enter into interest rate swaps,
caps, and floors on either an asset-based or liability-based basis, depending
upon whether it is hedging its assets or its liabilities, and will usually enter
into interest rate swaps on a net basis (i.e., the two payment streams are
netted out with the Fund receiving or paying, as the case may be, only the net
amount of the two payments). Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest; for example, an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. A currency swap is an
agreement to exchange cash flows on a notional amount of two or more currencies
based on the relative value differential among them. An index swap is an
agreement to swap cash flows on a notional amount based on changes in the values
of the reference indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling such cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount.
The net amount of the excess, if any, of the Fund's obligations over its
entitlement with respect to each interest rate swap will be calculated on a
daily basis and an amount of cash or other liquid assets having an aggregate net
asset value at least equal to the accrued excess will be maintained in a
segregated account by the Fund's custodian. If the Fund enters into an interest
rate swap on other than a net basis, it will maintain a segregated account in
the full amount accrued on a daily basis of its obligations with respect to the
swap. The Fund will not enter into any interest rate swap, cap or floor
transaction unless the unsecured senior debt or the claims-paying ability of the
other party thereto is rated in one of the three highest rating categories of at
least one nationally recognized statistical rating organization at the time of
entering into such transaction. The Sub-Adviser will monitor the
creditworthiness of all counterparties on an ongoing basis. If there is a
default by the other party to such a transaction, the Fund will have contractual
remedies pursuant to the agreement related to the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps and floors are more recent innovations for which
standardized documentation has not yet been developed and, accordingly, they are
less liquid than swaps. To the extent the Fund sells (i.e., writes) caps and
floors, it will segregate cash or high-grade liquid assets having an aggregate
net asset value at least equal to the full amount on a daily basis of its
obligations with respect to any caps or floors.
There is no limit on the amount of interest rate swap transactions that may
be entered into by the Fund. These transactions may in some instances involve
the delivery of securities or other underlying assets to the Fund or its
counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rates swaps is limited to the net amount of the payments that the Fund
is obligated contractually to make. If the other party to an interest rate swap
that is not collateralized defaults, the Fund would risk the loss of the net
amount of the payments that it contractually is entitled to receive. The Fund
may buy and sell (i.e., write) caps and floors without limitation, subject to
the segregation requirement described above.
ADDITIONAL RISKS OF OPTIONS ON FOREIGN CURRENCIES, FORWARD CONTRACTS AND FOREIGN
INSTRUMENTS
Unlike transactions entered into by the Funds in futures contracts, options
on foreign currencies and forward contracts are not traded on contract markets
regulated by the CFTC or (with the exception of certain foreign currency
options) by the SEC. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign currency
options also are traded on certain exchanges, such as the Philadelphia Stock
Exchange and the Chicago Board Options Exchange, subject to SEC regulation.
Similarly, options on currencies may be traded over-the-counter. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements therefore could continue
to an unlimited extent over a period of time. Although the buyer of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost. Moreover, an option writer and a buyer or
seller of futures or forward contracts could lose amounts substantially in
14
- ---------------------------
Allmerica Investment Trust
<PAGE>
excess of any premium received or initial margin or collateral posted due to the
potential additional margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on exchanges are within the
jurisdiction of the SEC, as other securities traded on such exchanges. As a
result, many of the protections provided to traders on organized exchanges will
be available with respect to such transactions. In particular, all foreign
currency option positions entered into on an exchange are cleared and guaranteed
by the Office of the Comptroller of the Currency ("OCC"), thereby reducing the
risk of counterparty default. Further, a liquid secondary market in options
traded on an exchange may be more readily available than in the over-the-counter
market, potentially permitting a Fund to liquidate open positions at a profit
prior to exercise or expiration, or to limit losses in the event of adverse
market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC, if it determines that
foreign government restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises or would result in undue burdens on the OCC or
its clearing member, may impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery, the fixing of dollar
settlement prices or prohibitions on exercise.
In addition, options on U.S. Government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (i) other complex
foreign political and economic factors (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements from those
in the United States and (v) low trading volume.
PORTFOLIO TURNOVER
The portfolio turnover rate for a Fund is calculated by dividing the lesser
of purchases or sales of portfolio securities by the Fund for a given year by
the monthly average of the value of the Fund's portfolios securities for that
year. The purchase or sale of all securities whose maturities or expiration
dates at the time of acquisition are less than 12 months and of money market
funds of amounts too small to invest in short-term obligations are not included
in the portfolio turnover rate.
While the rate of portfolio turnover is not a limiting factor when changes
in the portfolio are deemed appropriate, it is anticipated that under normal
circumstances the annual portfolio turnover rate would not exceed 200% with
respect to the Select Capital Appreciation Fund. In any particular year,
however, conditions could result in portfolio activities at a greater rate than
anticipated. In any case, a higher turnover rate does not in and of itself
indicate a variation from the stated investment policy. To a limited extent, the
Select Capital Appreciation Fund may engage in short-term trading. A higher
portfolio turnover rate may involve corresponding greater brokerage commissions
and other transaction costs, which would be borne directly by the Fund, as well
as additional realized gains and/or losses to shareholders. The turnover rates
for the following Funds for the two most recent fiscal years were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Select Aggressive Growth Fund 113% 95%
Select Capital Appreciation Fund 98% 133%
Select Value Opportunity Fund 20% 110%
Select International Equity Fund 18% 20%
Select Growth Fund 159% 75%
Growth Fund 72% 79%
Equity Index Fund 12% 9%
Select Growth and Income Fund 78% 71%
Select Income Fund 108% 79%
</TABLE>
15
-----------------------------
Allmerica Investment Trust
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Investment Grade Income Fund 108% 48%
Government Bond Fund 112% 56%
(for explanation, see the Prospectus)
</TABLE>
PERFORMANCE
The Trust may advertise performance information for the Funds and may
compare performance of the Funds with other investment or relevant indices. The
Funds may also advertise "yield", "total return" and other non-standardized
total return data. For the non-money market funds, "yield," is calculated
differently than for the Money Market Fund. The Money Market Fund may advertise
"yield" or "effective yield," ALL PERFORMANCE FIGURES ARE BASED ON HISTORICAL
EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. A Fund's share
price, yield and total return may fluctuate in response to market conditions and
other factors, and the value of Fund shares when redeemed may be more or less
than their original cost.
YIELDS AND TOTAL RETURNS QUOTED FOR THE FUNDS INCLUDE THE EFFECT OF
DEDUCTING THE FUNDS' EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES
ATTRIBUTABLE TO A PARTICULAR INSURANCE PRODUCT. SINCE SHARES OF THE FUNDS CAN BE
PURCHASED ONLY THROUGH A VARIABLE ANNUITY OR VARIABLE LIFE CONTRACT, YOU SHOULD
REVIEW CAREFULLY THE PROSPECTUS OF THE INSURANCE PRODUCT YOU HAVE CHOSEN FOR
INFORMATION ON RELEVANT CHARGES AND EXPENSES. INCLUDING THESE CHARGES IN THE
QUOTATIONS OF THE FUNDS' YIELDS AND TOTAL RETURNS WOULD HAVE THE EFFECT OF
DECREASING PERFORMANCE. PERFORMANCE INFORMATION FOR THE INSURANCE PRODUCT MUST
ALWAYS ACCOMPANY, AND BE REVIEWED WITH, ANY PERFORMANCE INFORMATION QUOTED FOR
THE FUNDS.
YIELDS OF THE FUNDS OTHER THAN THE MONEY MARKET FUND
The 30-day (or one month) standard yields of the Funds other than the Money
Market Fund are calculated as follows:
YIELD = 2[(a - b + 1)/6/ - 1 )]
-----
cd
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (not of reimbursements);
c = average daily number of shares outstanding during the period
entitled to receive dividends; and
d = maximum offering price per share on the last day
of the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the Fund. Except as noted below,
interest earned on debt obligations held by a Fund is calculated by computing
the yield to maturity of each obligation based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest) and dividing
the result by 360 and multiplying the quotient by the market value of the
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is held by the Fund. For purposes of this calculation, it is assumed
that each month contains 30 days. The maturity of an obligation with a call
provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market value of such debt
obligations. Expenses accrued for the period (variable "b" in the formula)
include all recurring fees charged by a Fund to all shareholder accounts in
proportion to the length of the base period and the Fund's mean (or median)
account size. Undeclared earned income will be subtracted from the offering
price per share (variable "d" in the formula).
MONEY MARKET FUND - YIELD AND EFFECTIVE YIELD
The yield of the Money Market Fund refers to the net income generated by an
investment in the Fund over a stated seven-day period, expressed as an annual
percentage rate. Yield is computed by determining the net change (exclusive
16
- ---------------------------
Allmerica Investment Trust
<PAGE>
of capital changes) in the value of a hypothetical pre-existing account having a
balance of 1 (one) share at the beginning of a seven-day calendar period,
dividing the net change in account value by the value of the account at the
beginning of the period, and multiplying the return over the seven-day period by
365/7. Thus the income is "annualized:" the amount of income generated by the
investment during the seven-day period is assumed to be generated each week over
a 52-week period and is shown as a percentage of the investment. For purposes of
the calculation, net change in account value reflects the value of additional
shares purchased with dividends from the original share and dividends declared
on both the original share and any additional shares, but does not reflect
realized gains or losses or unrealized appreciation or depreciation.
The effective yield is calculated similarly, but the income earned by an
investment in the Money Market Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of this compounding
effect.
TOTAL RETURN
The Funds may advertise total return. The total return shows what an
investment in each Fund would have earned over a specific period of time (one,
five, or ten years since commencement of operations, if less) assuming that all
distributions and dividends by the Fund were reinvested, and less all recurring
fees.
From time to time, the Fund may state its total return in advertisements
and investor communications. Total return may be stated for any relevant period
as specified in the advertisement or communication. Any statement of total
return or other performance data on the Fund will be accompanied by information
on the Fund's average annual total return over the most recent four calendar
quarters and the period from the Fund's inception of operations. The Fund also
may advertise aggregate annual total return information over different periods
of time.
A Fund's average annual total return is determined by reference to a
hypothetical $1,000 investment that includes capital appreciation and
depreciation for the stated period, according to the following formula:
P(1+T)n = ERV
Where: P = A hypothetical initial purchase of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of the hypothetical purchase at
the end of the period
Total return quoted in advertising reflects all aspects of the Fund's
return, including the effect of reinvesting dividends and capital gains
distributions, and any change in the Fund's net asset value per share over the
period.
AVERAGE ANNUAL RETURNS are calculated by determining the change in value of
a hypothetical investment in the Fund over a stated period, and calculating the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value has been constant over the period.
Average annual returns covering periods of less than one year are calculated by
determining the Fund's total return for the period, extrapolating that return
for a full year, and stating the result as an annual return. Because this method
assumes that performance will remain constant for the entire year when in fact
it is unlikely that performance will remain constant, average annual returns for
a partial year must be viewed as strictly theoretical information.
INVESTORS ALSO SHOULD BE AWARE THAT A FUND'S PERFORMANCE IS NOT CONSTANT
OVER TIME, BUT VARIES FROM YEAR TO YEAR. AVERAGE ANNUAL RETURN REPRESENTS
AVERAGED FIGURES AS OPPOSED TO THE ACTUAL PERFORMANCE OF THE FUND.
A Fund also may quote cumulative total returns which reflect the simple
change in value of an investment over a stated period. Average annual total
returns and cumulative total returns may be quoted as a percentage or as a
dollar amount. They may be calculated for a single investment, for a series of
investments or for a series of redemptions over any time period. Total returns
may be broken down into their components of income and capital in order to show
their respective contributions to total return. Performance information may be
quoted numerically or in a table, graph or similar illustration.
17
-----------------------------
Allmerica Investment Trust
<PAGE>
OTHER PERFORMANCE INFORMATION
Performance information for a Fund may be compared with: (1) the S&P 500,
Dow Jones Industrial Average, Lehman Aggregate Bond Index, Russell 2000, Russell
3000, Beta Adjusted Russell 3000, Lehman Government corporate and 90 day
Treasury Bills, Solomon High Yield Bond Index, Bank Rate Monitor, NASDAQ Index
or other unmanaged indices so that investors may compare a Fund's results with
those of a group of unmanaged securities widely regarded by investors as
representative of the securities markets in general; (2) other registered
investment companies or other investment products tracked (a) by Lipper
Analytical Services; Morningstar, Inc. and IBC/Donoghue, Inc., all widely used
independent research firms which rank mutual funds and other investment
companies by overall performance, investment objectives and assets, or (b) by
other services, companies, publications or persons who rank such investment
companies on overall performance or other criteria; (3) or the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information reflects only the performance of a hypothetical
investment during the particular time period on which the calculations are
based. Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the Fund and the market
conditions during the given time period. Yield and total return information may
be useful for reviewing the performance of the Fund and for providing a basis
for comparison with other investment alternatives. However, unlike bank deposits
or other investments which pay a fixed yield for a stated period of time, the
yield and total return do fluctuate.
PERFORMANCE INFORMATION FOR PERIOD ENDED DECEMBER 31, 1997
Set forth below is average annual total return information for the Select
Aggressive Growth Fund, Select Capital Appreciation Fund, Select Value
Opportunity Fund, Select International Equity Fund, Select Growth Fund, Growth
Fund, Equity Index Fund, Select Growth and Income Fund, Select Income Fund,
Investment Grade Income Fund, Government Bond Fund and Money Market Fund for the
1 year, 5 year, 10 year and/or since inception (the Trust began operations on
April 29, 1985) periods ended December 31, 1997, yields for the Select Income
Fund, Investment Grade Income Fund and Government Bond Fund for the 30-day
period ended December 31, 1997 and yield and effective yield information for the
Money Market Fund for the seven-day period ended December 31, 1997.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1 YEAR PERIOD 5 YEAR PERIOD 10 YEAR PERIOD SINCE INCEPTION
------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Select Aggressive Growth Fund 18.71% 16.80% N/A 19.57%
Select Capital Appreciation Fund 14.28% N/A N/A 22.89%
Select Value Opportunity Fund 24.85% N/A N/A 16.93%
Select International Equity Fund 4.65% N/A N/A 11.14%
Select Growth Fund 34.06% 15.15% N/A 16.37%
Growth Fund 25.14% 16.37% 17.12% 16.44%
Equity Index Fund 32.41% 19.54% N/A 19.68%
Select Growth and Income Fund 22.51% 16.57% N/A 15.36%
Select Income Fund 9.17% 6.86% N/A 6.51%
Investment Grade Income Fund 9.45% 7.51% 9.19% 9.05%
Government Bond Fund 7.08% 5.96% N/A 6.89%
Money Market Fund 5.47% 4.71% 5.80% 5.91%
</TABLE>
The Growth Fund, Investment Grade Income Fund and the Money Market Fund all
began business operations on April 29, 1985. The Equity Index Fund began
operations on September 28, 1990. The Government Bond Fund began operations on
August 26, 1991. The Select Aggressive Growth Fund, Select Growth Fund, Select
Growth and Income Fund and Select Income Fund began operations on August 21,
1992. The Select Value Opportunity Fund began operations on April 30, 1993. The
Select International Equity Fund began operations on May 2, 1994. The Select
Capital Appreciation Fund began operations on April 28, 1995.
18
- ---------------------------
Allmerica Investment Trust
<PAGE>
<TABLE>
<CAPTION>
YIELDS FOR 30-DAY PERIODS
ENDED DECEMBER 31, 1997
-----------------------
(UNAUDITED)
<S> <C>
Select Income Fund 5.87%
Investment Grade Income Fund 6.22%
Government Bond Fund 5.69%
<CAPTION>
YIELD FOR SEVEN DAY PERIOD EFFECTIVE YIELD FOR SEVEN DAY PERIOD
ENDED DECEMBER 31, 1997 ENDED DECEMBER 31, 1997
----------------------- -----------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Money Market Fund 5.58% 5.68%
</TABLE>
MANAGEMENT OF ALLMERICA INVESTMENT TRUST
The Trust is managed by a Board of Trustees. The affairs of the Trust are
conducted in accordance with the Bylaws adopted by the Trustees.
<TABLE>
<CAPTION>
POSITION AND OFFICES PRESENT POSITION AND PRINCIPAL
NAME ADDRESS AND AGE WITH THE TRUST OCCUPATIONS DURING THE PAST 5 YEARS
- -------------------- -------------------- -----------------------------------
<S> <C> <C>
Cynthia A. Hargadon (43) Trustee President, Stable Value Investment Association
1880 Virginia Avenue (investment trade group), and Senior
Consultant, McLean, Virginia Johnson Custom Strategies (investment service firm),
1996-Present; Senior Vice President and Chief
Investment Officer, ICMA Retirement Corporation
(investment adviser), 1987-1996
Gordon Holmes (59) Trustee Lecturer and Executive in Residence, Boston
75 Clarendon Street University, 1997 to Present; Certified Public
Boston, Massachusetts Accountant; Retired Partner, Tofias, Fleishman
Shapiro & Co., P.C. (Accountants) 1976-1996
*John P. Kavanaugh (43) Trustee and President, Allmerica Asset Management,
440 Lincoln Street Vice President Inc. since 1995, Vice President, First Allmerica and
Worcester, Massachusetts Allmerica Financial Life
Bruce E. Langton (66) Trustee Director, Competitive Technologies Inc.
99 Jordan Lane (technology transfer); Trustee, Bankers Trust
Stamford, Connecticut institutional mutual funds; Member, Investment
Committee, TWA Pilots Trust Annuity Plan;
Member, Investment Committee, Unilever United
States - Pension & Thrift plans
*John F. O'Brien (54) Trustee and President, Chief Executive Officer and Director, First
440 Lincoln Street Chairman of the Board Allmerica; Director and Chairman of the Board,
Worcester, Massachusetts Allmerica Financial Life; Director, ABIOMED, Inc.
(medical devices); Director, Cabot Corporation
(specialty chemicals); Director, TJX Corporation,
Inc. (retail)
</TABLE>
19
-----------------------------
Allmerica Investment Trust
<PAGE>
<TABLE>
<CAPTION>
POSITION AND OFFICES PRESENT POSITION AND PRINCIPAL
NAME ADDRESS AND AGE WITH THE TRUST OCCUPATIONS DURING THE PAST 5 YEARS
- -------------------- -------------------- -----------------------------------
<S> <C> <C>
Attiat F. Ott (62) Trustee Professor of Economics and Director of
262 Salisbury Street the Institute for Economic Studies, Clark
Worcester, Massachusetts University
*Richard M. Reilly (59) Trustee President, Allmerica Financial Life since
440 Lincoln Street and President 995; Vice President, First Allmerica and
Worcester, Massachusetts President, Allmerica Investment Manage-
ment Company, Inc.
Ranne P. Warner (53) Trustee President, Centros Properties, USA;
Centros Properties USA, Inc. Owner, Ranne P. Warner and Company;
176 Federal Street, 6th Floor Director, Wainwright Bank & Trust Co.
Boston, MA 02110 (commercial bank); Trustee, Ericksen Trust
Thomas P. Cunningham (52) Vice President and Assistant Vice President, First
440 Lincoln Street Treasurer Allmerica since March 1996; Vice
Worcester, Massachusetts President, First Data Investor Services
Group, Inc., 1995-1996; Vice President,
Fidelity Investments, 1992-1994
George Boyd (53) Secretary Counsel, First Allmerica since
440 Lincoln Street January 1997; Director, Mutual
Worcester, Massachusetts Fund Administration - Legal and
Regulatory, Investors Bank &
Trust Company, 1995-1996; Vice
President and Counsel, 440
Financial Group and First Data
Investor Services Group,
1992-1995.
</TABLE>
* Asterisks indicate the Trustees who are "interested persons" of the Trust as
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
The Trustees who are not directors, officers, or employees of the Trust or
any investment adviser are reimbursed for their travel expenses in attending
meetings of the Trust.
Listed below is the compensation paid to each Trustee by the Trust and by
all fourteen funds in the complex for the fiscal year ended December 31, 1997.
The Fund currently does not provide any pension or retirement benefits for its
Trustee or officers.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM TRUST COMPLEX
AGGREGATE (INCLUDES 2 OTHER
COMPENSATION INVESTMENT COMPANIES)
NAME OF PERSON AND POSITION FROM TRUST PAID TO TRUSTEES
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Russell E. Fuller* $5,789.98 $6,000.00
Gordon Holmes $12,552.31 $13,375.00
Bruce E. Langton $13,039.43 $13,875.00
Attiat F. Ott $13,770.20 $14,625.00
Ranne P. Warner $14,257.35 $15,125.00
Cynthia Hargadon** 7,858.50 $8,500.00
John P. Kavanaugh 0 0
John F. O'Brien 0 0
Richard M. Reilly 0 0
</TABLE>
20
- ---------------------------
Allmerica Investment Trust
<PAGE>
* Mr. Fuller resigned as Trustee effective August 15, 1997.
** Ms. Hargadon was appointed Trustee on August 15, 1997.
The Trust Declaration provides that the Trust will indemnify its Trustees
and officers liabilities and expenses incurred in connection with litigation in
which they may be involved because of their offices with the Trust, except if it
is determined in the manner specified in the Trust Declaration that they have
not acted in good faith in the reasonable belief that their actions were in the
best interests of the Trust or that such indemnification would relieve any
officer or Trustee of any liability to the Trust or its shareholders by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of his
or her duties.
CONTROL PERSON AND PRINCIPAL HOLDER OF SECURITIES
The Trust was established as a Massachusetts business trust under the laws
of Massachusetts by an Agreement and Declaration of Trust dated October 11,
1984. Allmerica Financial Investment Management Services, Inc. ("AFIMS") is the
Manager of the Trust. The shares of each of the Funds of the Trust may be
purchased only by Separate Accounts established by First Allmerica or Allmerica
Financial Life. The Separate Accounts of First Allmerica or its affiliates are
the shareholders of the Trust. As of March 20, 1998, Allmerica Financial Life,
owned both of record and beneficially in excess of 99% of the shares of the
Select Emerging Markets Fund and in excess of 99% of the shares of the Select
Strategic Growth Fund. A shareholder that owns more than 25% of the shares of a
Fund is deemed to be a controlling person of such Fund. As of March 20, 1998,
the Trustees and officers of the Trust, as a group, owned less than 1% of the
outstanding shares of any Fund. AFIMS, First Allmerica and Allmerica Financial
Life are indirect wholly-owned subsidiaries of Allmerica Financial Corporation
("AFC"), a publicly-traded Delaware holding company for a group of affiliated
companies, the largest of which is First Allmerica. The address of AFIMS, First
Allmerica, Allmerica Financial Life and AFC is 440 Lincoln Street, Worcester, MA
01653. AFIMS and First Allmerica were organized in Massachusetts and Allmerica
Financial Life was organized in Delaware.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Allmerica Financial Investment Management Services, Inc. (the "Manager")
serves as investment manager of the Trust pursuant to a management agreement
between the Trust and the Manager (the "Management Agreement"). The Manager has
entered into sub-adviser agreements with different investment advisory firms
(the "Sub-Advisers") to manage each of the Funds.
The methods of computing the advisory and sub-advisory fees are set forth
in the Prospectuses under "Management Fees and Expenses."
The total gross fees (before reimbursement) paid to the Manager under the
Management Agreement for each of the last three fiscal years ended December 31,
1997 were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR 1997 FISCAL YEAR 1996 FISCAL YEAR 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Select Aggressive Growth Fund $4,850,649 $3,302,349 $1,943,953
Select Capital Appreciation Fund $1,813,444 $902,600 $133,723
Select Value Opportunity Fund $1,433,016 $726,992 $453,215
Select International Equity Fund $3,258,876 $1,701,942 $672,770
Select Growth Fund $2,959,723 $1,508,861 $1,017,303
Growth Fund $2,840,683 $2,163,374 $1,796,677
Equity Index Fund $705,708 $375,619 $234,207
Select Growth and Income Fund $2,807,177 $1,778,832 $1,124,323
Select Income Fund $524,021 $398,522 $297,434
Investment Grade Income Fund $710,821 $596,308 $511,997
Government Bond Fund $244,355 $235,359 $206,197
Money Market Fund $647,964 $510,258 $389,542
</TABLE>
21
-----------------------------
Allmerica Investment Trust
<PAGE>
The total gross fees paid to each Sub-Adviser under the respective
Sub-Adviser Agreement for each of the last three fiscal years ended December 31,
1997 were as follows:
<TABLE>
<CAPTION>
PAYMENTS MADE AS OF DECEMBER 31,
--------------------------------
FUND/SUB-ADVISER FISCAL YEAR 1997 FISCAL YEAR 1996 FISCAL YEAR 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Select Aggressive Growth Fund
Nicholas-Applegate Capital Management, L.P. $2,885,239 $1,986,838 $1,166,372
Select Capital Appreciation Fund*
Janus Capital Corporation ("JCC") $1,070,021 $538,873 $79,987
Select Value Opportunity Fund
(formerly Small-Mid Cap Value Fund)
Cramer Rosenthal McGlynn, LLC ("CRM")** $851,815 $428,814 $266,597
Select International Equity Fund
Bank of Ireland Asset Management (U.S.) Limited $1,137,825 $665,639 $293,389
Select Growth Fund
Putnam Investment Management, Inc. ("Putnam")*** $1,328,717 $372,442 $563,572
Growth Fund
Miller Anderson & Sherrerd ("MAS")**** $1,493,997 $2,330,558 $2,307,461
Select Growth and Income Fund
John A. Levin & Co., Inc. ("JAL") $1,159,260 $684,181 $524,774
Select Income Fund
Standish, Ayer & Wood Inc. $177,505 $133,205 $99,145
Allmerica Asset Management, Inc.
Equity Index Fund, Investment Grade Income Fund,
Government Bond Fund and Money Market Fund $911,548 $694,940 $537,745
</TABLE>
* The Select Capital Appreciation Fund began business operations on April
28, 1995. JCC was replaced by T. Rowe Price Associates, Inc. as Sub-
Adviser for the Select Capital Appreciation Fund on April 1, 1998.
** David L. Babson & Co., Inc. was replaced by Cramer Rosenthal McGlynn, LLC
as Sub-Adviser for the Select Value Opportunity Fund on January 1, 1997.
*** Provident Investment Counsel was replaced by Putnam as Sub-Adviser for
the Select Growth Fund on July 1, 1996. The total dollar amount paid to
Putnam for the period July 1, 1996 through December 31, 1996 was
$432,378.
**** Includes payments to MAS for advisory services provided to certain other
accounts of First Allmerica.
Each of the Management Agreement and sub-advisory agreements provides that
it may be terminated as to any Fund at any time by a vote of a majority in
interest of the shareholders of such Fund, by the Trustees or by the investment
adviser to such Fund without payment of any penalty on not more than 60 days'
written notice; provided, however, that the agreement will terminate
automatically in the event of its assignment. Each of the agreements will
continue in effect as to any Fund for a period of no more than two years from
the date of its executor only so long as such continuance is approved
specifically at least annually by the Trustees or by vote of a majority in
interest of the shareholders of such Fund. In either event, such continuance
also must be approved by vote of a majority of the Trustees who are not parties
to the agreement or interested persons of the Trust, the Manager or any
sub-adviser, cast in person at a meeting called for the purpose of voting such
approval. The terms of each agreement cannot be changed as to any Fund without
the approval of a majority in interest of the shareholders of that Fund. The
Trust and Manager have filed an application with the SEC for an order of
exemption that would permit the Manager to enter into and materially amend
sub-advisory agreements with non-affiliated Sub-Advisers without obtaining
shareholder approval. If the requested relief is granted by the SEC, the Manager
will have the ability, subject to approval of the Trustees, to hire
22
- ---------------------------
Allmerica Investment Trust
<PAGE>
and terminate Sub-Advisers to the Funds and to change materially the terms of
the Sub-Advisory Agreements, including the compensation paid to the Sub-
Advisers, without the approval of the shareholders of the Funds. Under such
agreements, any liability of either the Manager or a sub-adviser is limited to
situations involving its willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties.
As printed in Nelson's Directory of Plan Sponsors - 1997, following is
a listing of Schroder Capital Management International Inc.'s current
representative clients in emerging markets investments:
<TABLE>
<S> <C>
-Evangelical Lutheran -Louisiana State E.R.S.
Church Pension -Merck & Co.
-Georgia-Pacific -New York City Retirement Systems
-Idaho P.E.R.S. -NYC Teachers' Retirement Systems
-Inland Steel Industries -Orange County Retirement System
-Intermountain Health Care -Utah State Retirement System
-L.A. City Employees Retirement -Washington State Investment Board
</TABLE>
A listing of Nicholas-Applegate Capital Management, L.P.'s current
representative clients is as follows:
<TABLE>
<S> <C>
- Champion International Corp. - Southwestern Bell Corporation
- Eastman Kodak - San Francisco City and County
- Johnson & Johnson - Unisys Corporation
- Screen Actors Guild-Producers - University of Notre Dame
- Pension and Health Plan - University of Southern California
</TABLE>
A listing of T. Rowe Price Associates, Inc.'s current representative
clients is as follows:
<TABLE>
<S> <C>
- Alyeska Pipeline Service Company - Kaiser Permanente
- Atlantic Electric Company - Marriott International, Inc.
- Avondale Mills, Inc. - City of New York
- Baltimore Gas and Electric Company - Northwest Airlines, Inc.
- The Black & Decker Company - Reynolds Metals Company
- Colonial Pipeline Company - Rochester Gas & Electric Corporation
- Cooper Cameron Corporation - Signet Trust Company
- Cooper Industries, Inc. - Solvay America, Inc.
- Entergy Corporation - State of Alaska
- GenCorp, Inc. - State of Nebraska
- General Signal Corporation - State of New York
- ICI Americas, Inc. - T. Rowe Price Trust Company
- International Brotherhood of Electrical - Warner-Lambert Company
Workers - Winn-Dixie Stores, Inc.
- J.C. Penney Company, Inc.
</TABLE>
A listing of Cramer Rosenthal McGlynn, LLC's current representative clients
is as follows:
<TABLE>
<S> <C>
- Amherst College Endowment - Indiana University Foundation
- The Carnegie Institute - Maine State Retirement
- Central States Teamsters - National Basketball Association Players Pension Plan
- The UCLA Foundation - Niagara Mohawk Power Corp.
- College of Holy Cross - University of Illinois Foundation
</TABLE>
23
-----------------------------
Allmerica Investment Trust
<PAGE>
A listing of Bank of Ireland Asset Management (U.S.) Limited's current
representative clients is as follows:
<TABLE>
<S> <C>
- CALSTRS - Pfizer Retirement Annuity Plan
- City of Dallas Employees' - Maryland State Retirement System
Retirement Fund
- Loyola Marymount University - Screen Actors Guild - Producers
Endowment Fund Pension Plan
- LTV Steel Corporation Pension Fund - Tuft's University Endowment Fund
- Major League Baseball Players - Worcester County Retirement System
Benefit Plan
</TABLE>
A listing of Putnam Advisory Company, Inc.'s ("PAC")* current
representative clients is as follows:
<TABLE>
<S> <C>
- Ameritech Corporation - New York Philharmonic Orchestra
- Bacardi Corporation - Parker-Hannifin Corporation
- Betz Dearborn Inc. - Textron, Inc.
- Los Angeles County Employees' - The Robert Wood Johnson Foundation
Retirement Association - Johns Manville Corporation
- Matsushita Electric Corporation of - United Steelworkers of America
America
</TABLE>
*(PAC is the institutional affiliate of Putnam Investment Management, Inc.)
A listing of Cambiar Investors, Inc.'s current representative clients is as
follows:
<TABLE>
<S> <C>
-American Hospital Association -Nationwide Insurance
-AvMed Health Plan -New Mexico/West Texas Multicraft
-Boeing Company -Regent University
-City Public Service of San Antonio -Schurz Communication Retirement Plan
-El Paso Community Foundation -Sheet Metal Workers Local #20
-Frank Russell Trust Company -Taos Ski Valley Inc.
-Guaranty National Insurance -Turlock Irrigation District Retirement Plan
Corporation -United Airlines
-Health First Corporation -Viking Insurance Company
-Hunter Douglas Retirement Plan -Waco Employees Profit Sharing Plan
-Metropolitan Life
</TABLE>
A listing of Miller Anderson & Sherrerd LLP's current representative
clients is as follows:
<TABLE>
<S> <C>
- AT&T - International Paper
- Boeing Company - Montgomery Ward
- Federal Reserve - Philip Morris, Inc.
- J. Paul Getty Trust - Smithsonian Institution
- Girl Scouts of the United States of - United Technologies Corporation
America
</TABLE>
A listing of John A. Levin & Co., Inc.'s representative clients is as
follows:
<TABLE>
<S> <C>
- Allied Signal, Inc. - New York City Teachers Retirement Fund
- Johns Hopkins University - New York Philharmonic Society
- Joseph E. Seagram & Sons, Inc. - Thiokol, Inc.
- Morton International - Yale University
</TABLE>
24
- --------------------------
Allmerica Investment Trust
<PAGE>
A listing of Standish, Ayer & Wood's current representative clients is as
follows:
<TABLE>
<S> <C>
- Archdiocese of Boston - City of Houston
- AT&T - New York Public Library
- BankAmerica - Northeastern University
- Harcourt General - Reinsurance Association
- General Cinema
</TABLE>
A listing of AAM's current representative clients is as follows:
<TABLE>
<S> <C>
- First Allmerica - City of Worcester Retirement System
- Citizens Insurance - Worcester County Contributory
- Hanover Insurance Retirement System
- Hannibal Regional Hospital
- Massachusetts Education and
Government Association Workers
Compensation Trust
- Farm Credit System Association
Captive Insurance Company
</TABLE>
Under the terms of the Management Agreement, the Trust recognizes the
Manager's control of the name "Allmerica Investment Trust." The Trust agrees
that its right to use that name is non-exclusive and can be terminated by the
Manager at any time.
SERVICES AGREEMENT
Under the terms of a Fund Accounting Services Agreement, First Data
Investors Services Group, Inc. ("Investor Services Group"), a wholly-owned
subsidiary of First Data Corporation located at 4400 Computer Drive, Westboro,
MA 01581, serves as the Trust's fund recordkeeping services agent. Investor
Services Group provides certain services, including determination of the net
asset value per share of each of the Funds and maintenance of the accounting
records of the Trust. Investor Services Group is entitled to receive an annual
fund recordkeeping fee based on Fund assets and certain out-of-pocket expenses.
The Fund Accounting Services Agreement may be renewed or amended by the Trustees
without a shareholder vote. The Fund Accounting Services Agreement is terminable
by either party on 90 days' written notice. The total fund recordkeeping fees
paid to Investor Services Group for the following periods were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996 APRIL 1, 1995 THROUGH DECEMBER 31, 1995
----------------- ----------------- ---------------------------------------
<S> <C> <C>
$748,941 $544,206 $319,658
</TABLE>
Prior to March 31, 1995, fund accounting services were provided by 440
Financial Group of Worcester, Inc. ("440 Financial"), a wholly-owned subsidiary
of State Mutual Life Assurance Company of America (now named First Allmerica).
The total fund recordkeeping fee paid to 440 Financial for the following period
was as follows:
JANUARY 1, 1995 THROUGH MARCH 31, 1995*
--------------------------------------
$168,565
* 440 Financial received fees for fund accounting and other services.
CUSTODIAN
Bankers Trust Company acts as custodian of the cash and investment
securities of the Trust. As such, it holds in custody the Trust's portfolio
securities and receives and delivers them upon purchases and sales.
BROKERAGE ALLOCATION
In accordance with the Management Agreement and sub-advisory agreements,
the respective Sub-Adviser has the responsibility for the selection of brokers
for the execution of purchases and sales of the securities in a given Fund's
25
-----------------------------
Allmerica Investment Trust
<PAGE>
portfolio subject to the direction of the Trustees. The Sub-Advisers place the
Funds' portfolio transactions with brokers and, if applicable, negotiate
commissions.
Broker-dealers may receive brokerage commissions on portfolio transactions
of the Funds. The Sub-Advisers also may place portfolio transactions with such
broker-dealers acting as principal, in which case no brokerage commissions are
payable but other transaction costs are incurred. The Funds have not dealt nor
do they intend to deal exclusively with any particular broker-dealer or group of
broker-dealers. It is each Fund's policy always to seek best execution. This
means that each Fund's portfolio transactions will be placed where the Fund can
obtain the most favorable combination of price and execution services in
particular transactions or as provided on a continuing basis by a broker-dealer,
and that the Fund will deal directly with a principal market maker in connection
with over-the-counter transactions, except when it is believed that best
execution is obtainable elsewhere. In evaluating the execution services of a
broker-dealer, including the overall reasonableness of its brokerage commissions
paid, consideration is given to the firm's general execution and operational
capabilities and to its reliability, integrity and financial condition. Subject
to the practice of always seeking best execution, the Funds' securities
transactions may be executed by broker-dealers who also provide research
services (as defined below) to the Funds, the Sub-Advisers and the other clients
advised by the Sub-Advisers. Examples of such research services include reports
on specific companies or industries, economic and financial data, performance
measurement services, computer databases and pricing and appraisal services. The
sub-advisers may use all, some or none of such research services in providing
investment advisory services to each of its investment companies and other
clients, including the Funds. To the extent that such services are used, they
tend to reduce the expenses of the Sub-Advisers. In the opinion of the
Sub-Advisers it is impossible to assign an exact dollar value to such services.
BROKERAGE AND RESEARCH SERVICES
The agreements provide that, subject to such policies as the Trustees may
determine, the Sub-Advisers may cause a given Fund to pay a broker-dealer which
provides brokerage and research services an amount of commission for effecting a
securities transaction for that Fund in excess of the amount of commission which
another broker-dealer would have charged for effecting that transaction. As
provided in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and
research services" include advice as to the value of securities; the
advisability of investing in, purchasing or selling securities; the availability
of securities or purchasers or sellers of securities; furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends;
portfolio strategy and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance and
settlement). The Sub-Advisers must determine in good faith that such greater
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing broker-dealer viewed in terms of that
particular transaction or the overall responsibilities of the Sub-Advisers to
its respective Funds and all other clients. The Sub-Advisers also may consider
sales by broker-dealers of variable and group annuity contracts and variable
life insurance policies that contemplate the Funds as an investment option as a
factor in the selection of broker-dealers to execute portfolio transactions.
The other investment companies and clients advised by the Sub-Advisers
sometimes invest in securities in which the Funds also invest. A Sub-Adviser
also may invest for its own account in the securities in which the Funds invest.
If the Funds, such other investment companies and other clients of the
Sub-Advisers desire to buy or sell the same portfolio security at about the same
time, the purchases and sales normally are made as nearly as practicable on a
pro rata basis in proportion to the amounts desired to be purchased or sold by
each. It is recognized that in some cases this practice could have a detrimental
effect on the price or volume of the security as far as the Funds are concerned.
In other cases, however, it is believed that this practice may produce better
executions. It is the opinion of the Trustees that the desirability of retaining
the Sub-Advisers as investment advisers to their respective Funds outweighs the
disadvantages, if any, which might result from this practice.
Brokerage commissions for each of the last three years were as follows:
<TABLE>
<CAPTION>
FUND 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C>
Select Aggressive Growth Fund $1,238,116 $929,338 $685,971
Select Capital Appreciation Fund $474,666 $240,295 $94,679
Select Value Opportunity Fund
(formerly Small-Mid Cap Value Fund) $649,306 $101,743 $54,538
Select International Equity Fund $453,544 $360,263 $212,481
</TABLE>
26
- ---------------------------
Allmerica Investment Trust
<PAGE>
<TABLE>
<CAPTION>
FUND 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C>
Select Growth Fund $459,136 $450,238 $147,728
Growth Fund $969,754 $838,998 $577,791
Equity Index Fund $100,012 $63,013 $28,468
Select Growth and Income Fund $962,045 $561,049 $458,046
Government Bond Fund $0 $0 $16,759
</TABLE>
The Select Income Fund, Investment Grade Income Fund and Money Market Fund
did not incur brokerage commissions in any of these years.
DIRECTED BROKERAGE PROGRAM
Certain Funds managed by the Manager participate in a directed brokerage program
whereby the Funds receive credit for brokerage activity and apply those credits
toward the payment of Fund expenses. Such Funds have entered into an agreement
with certain brokers which rebate a portion of commissions as credits toward
Fund expenses. In addition, this program gives Fund management the ability to
direct brokerage by firms which sell insurance products sponsored by First
Allmerica Financial and its affiliates. This second aspect of the program, which
would be limited to 15% of total commissions, has not been implemented. Such
amounts earned by the Funds in 1996 and 1997 under such agreements were as
follows:
<TABLE>
<CAPTION>
Fund 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C>
Select Aggressive Growth Fund $221,364 N/A N/A
Select Value Opportunity Fund $84,389 $19,715 N/A
Select International Equity Fund $70,636 $52,998 N/A
Select Growth Fund $90,962 $10,405 N/A
Growth Fund $152,829 $124,205 N/A
Select Growth and Income Fund $102,293 $77,523 N/A
</TABLE>
PURCHASE, REDEMPTION, AND PRICING OF SECURITIES BEING OFFERED
As described in the Prospectus, shares of each Fund are sold and redeemed
at their net asset value as next computed after receipt of the purchase or
redemption order. Each purchase is confirmed to the Separate Account in a
written statement of the number of shares purchased and the aggregate number of
shares currently held.
The net asset value per share of each Fund is the total net asset value of
that Fund divided by the number of shares outstanding. The total net asset value
of each Fund is determined by computing the value of the total assets of that
Fund and deducting total liabilities, including accrued liabilities. The net
asset value of the shares of each Fund is determined once daily as of the close
of the New York Stock Exchange on each day on which the Exchange is open for
trading, and no less frequently than once daily on each other day (other than a
day during which no shares of the Fund were tendered for redemption and no order
to purchase or sell such shares was received by the Fund) in which there was a
sufficient degree in trading in the Fund's portfolio securities that the current
net asset value of the Fund's shares might be affected materially by changes in
the value of such portfolio securities.
Debt securities for which market quotations are not readily available are
valued at fair value by using valuation procedures approved in good faith by the
Trustees. As authorized by the Trustees, debt securities (other than short-term
obligations) of the Funds other than the Money Market Fund are valued on the
basis of valuations furnished by a pricing service which utilizes data
processing methods to determine valuations for normal, institutional-size
trading units of such securities. Such methods include the use of market
transactions for comparable securities and various relationships between
securities which generally are recognized by institutional traders. Short-term
obligations having remaining maturities of sixty (60) days or less are valued at
amortized cost.
Short-term debt securities of the Funds other than the Money Market Fund
having a remaining maturity of more than sixty (60) days will be valued using a
"market-to-market" method based upon either the readily available market price
or, if reliable market quotations are not available, upon quotations by dealers
or issuers for securities of a similar
27
-----------------------------
Allmerica Investment Trust
<PAGE>
type, quality and maturity. "Marking-to-market" takes into account unrealized
appreciation or depreciation due to changes in interest rates or other factors
which would influence the current fair value of such securities.
All portfolio securities of the Money Market Fund will be valued by the
amortized cost method. The purpose of this method of calculation is to attempt
to maintain a constant net asset value per share of $1.00. No assurance can be
given that this goal can be attained. Amortized cost is an approximation of
market value determined by increasing systematically the carrying value of a
security acquired at a discount or reducing systematically the carrying value of
a security acquired at a premium, so that the carrying value is equal to
maturity value on the maturity date. It does not take into consideration
unrealized gains or losses. While the amortized cost method provides certainty
and consistency in portfolio valuation, it may result in valuations of portfolio
securities which are higher or lower than the prices at which the securities
could be sold. During such periods, the yield to investors in a Fund may differ
somewhat from that obtained if the Fund were to use mark-to-market value for its
portfolio securities. For example, if the use of amortized cost resulted in a
lower (higher) aggregate portfolio value on a particular day, a prospective
investor in the Fund would obtain a somewhat higher (lower) yield than would
result from marked-to-market valuation, and existing investors would receive
less (more) investment income.
The use of the amortized cost method of valuation by the Money Market Fund
is subject to rules of the Securities and Exchange Commission. Under the rules,
the Fund is required to maintain a dollar weighted average portfolio maturity of
90 days or less and to limit its investments to instruments which (1) its
Sub-Adviser, subject to the guidelines established by the Trustees, determines
present minimal credit risks; (2) have high quality ratings or are deemed
comparable, such that they are "eligible securities" as defined below; and (3)
have remaining maturity of thirteen months (397 days) or less at the time of
purchase, or are subject to a demand feature which reduces the remaining
maturity to thirteen months or less.
The Money Market Fund may purchase only "First or Second Tier eligible
securities" which are defined to include (1) securities which have received the
highest or second highest rating by at least two nationally recognized
statistical rating organizations ("NRSRO") or by only one NRSRO if only one has
rated the security and (2) securities which are unrated, but, in the
Sub-Adviser's opinion, are of comparable quality. The Money Market Fund may
purchase securities which were long-term at issuance but have a remaining
maturity of thirteen months or less at the time of purchase if (a) the issuer
has comparable short-term debt securities outstanding which are eligible
securities or (b) the issuer has no short-term rating and the securities have
either no long-term rating or a long-term rating in one of the two highest
categories by an NRSRO.
The above standards must be satisfied at the time an investment is made. If
the quality of the investment later declines, the Fund (a) may dispose of the
security within five business days of the Sub-Adviser becoming aware of the new
rating, or (b) may continue to hold the investment, but the Trustees will
evaluate whether the security continues to present minimal credit risks.
As a part of the overall duty of care they owe to the Fund's shareholders,
the Trustees have established procedures reasonably designed to stabilize the
net asset value per share of the Money Market Fund as computed for the purpose
of distribution and redemption at $1.00 per share taking into account current
market conditions and the Fund's investment objective. At such reasonable
intervals as they deem appropriate in light of current market conditions, the
Trustees will compare the results of calculating the net asset value per share
based on amortized cost with the results based on available indications of
market value. If a difference of more than 1/2 of 1% occurs between the two
methods of valuation, the Trustees will consider taking whatever steps they deem
necessary to minimize any material dilution or other unfair results, such as
shortening the average portfolio maturity or realizing gains or losses.
ORGANIZATION OF THE TRUST
The Agreement and Declaration of the Trust ("Trust Declaration") provides
that all persons extending credit to, contracting with, or having any claims
against the Trust or a particular Fund shall look only to the assets of the
Trust or particular Fund for payment under such credit, contract or claim, and
neither the shareholders, Trustees, nor any of the Trust's officers, employees
or agents shall be personally liable thereof. Under Massachusetts law,
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust. The Trust Declaration, however, disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Trust or the Trustees. The Trust Declaration provides for
indemnification out of a Fund's property for all loss and expense of any
shareholder of that Fund held
28
- ---------------------------
Allmerica Investment Trust
<PAGE>
liable on account of being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund of which he or she was a shareholder
would be unable to meet its obligations.
Pursuant to the Trust Declaration, a Trustee is liable for his or her own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, but is not liable for
errors of judgment, mistakes of fact or law any act or omission in accordance
with the advice of counsel or other experts with respect to the meaning of the
Trust Declaration, or for failing to follow such advice.
The Trust Declaration provides that, on any matter submitted to a vote of
the shareholders, all shares shall be voted by individual series, except (1)
when required by the 1940 Act, shares shall be voted in the aggregate and not by
individual series, and (2) when the Trustees have determined that the matter
affects only the interests of one or more series, then only the shareholders of
such series shall be entitled to vote thereon. Shares are freely transferable,
are entitled to dividends as declared by the Trustees and, on liquidation of the
Trust, shareholders are entitled to receive their pro rata portion of the net
assets of the Fund of which they hold shares, but not of any other Fund.
Shareholders have no preemptive rights.
In the event that at any time less than a majority of the Trustees then in
office were elected by the shareholders, the Trustees must call a meeting of
shareholders promptly for the purpose of electing Trustees. Shareholders will be
assisted in communicating with other shareholders in connection with removing a
Trustee as if Section 16(c) of the 1940 Act applied to the Trust.
Matters subject to a vote by the shareholders include changes in the
fundamental policies of the Trust as described in the Prospectus and the SAI,
the election or removal of Trustees and the approval of agreements with
investment advisers. A majority, for the purposes of voting by shareholders
pursuant to the 1940 Act, is 67% or more of the voting securities of an
investment company present at an annual or special meeting of shareholders if
50% of the outstanding voting securities of such company are present or
represented by proxy or more than 50% of the outstanding voting securities of
such company, whichever is less.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as the Fund's independent accountants providing audit and accounting
services including (i) examination of the annual financial statements, (ii)
assistance and consultation with respect to the preparation of filings with the
Securities and Exchange Commission, and (iii) review of annual income tax
returns.
FINANCIAL STATEMENTS
The Trust's Financial Statements and related notes and the report of the
independent accountants contained in the Trust's annual report for the fiscal
year ended December 31, 1997 are incorporated by reference into this Statement
of Additional Information.
29
-----------------------------
Allmerica Investment Trust
